To Blockchain or Not to Blockchain: The Decision Tree With the Answer

We’ve heard it hundreds of times. Blockchain is Web 3.0 or Geekdom’s latest marvel. Entrepreneurs, or business owners, who capitalize on this technology when young make it rich. Innovators like Ripple turned a $10,000 investment into $1.5 million in five years. Binance, only a year old, has a market cap of $840.8 million, according to Coinmarketcap. So it’s understandable that you’d speculate about launching your own business blockchain. You may not want to innovate anything, but, hey, blockchain’s said to be the next Revolution. Blockchain fanatics say it’s a core differentiator and value driver, leading you, if you have a business, to quite likely think maybe you should jump on board.

Should you?

Brian Winker’s take on blockchain for business

Sometime last year, I interviewed Brian Winkers, founder of blockchain money automation company bitlov.com that won first place in the 2015 StartUp Chile! Competition.

Winkers himself is an open-source developer and Bitcoin analyst who has been playing around with crypto projects since 2012 and has helped small and medium-sized businesses get on or, rather, more often, off the blockchain.

For Winkers, blockchain for small business is a bonkers idea, largely because of Bitcoin. Bitcoin’s platform has problems with scalability: The platform is slow – around ten transactions per second compared to Visa’s 5,000 to 8,000 transactions in the same time span. The ledger became congested. The company itself struggles with internal squabbling.

Truth is Bitcoin is competing with more scalable and less problematic platforms like Ethereum and IOTA, so businesses can profit from blockchain more than was possible, say, ten years ago.

The problem is the expense.

Blockchain expense

Blockchain technology is free if you want to do all the work. The problem is recruiting a blockchain developer, and that’s where the trouble starts. As of 2018, a decent blockchain developer costs anywhere from $150,000 to $200,000 at the very least. Forget the fly-by-night freelancer from a platform like Elance, Guru or the like. Actually employing someone from such a platform would likely cost you more, since you may have to pay for errors. Any coding error or slight mishap means the ledger needs to be dismantled and rebuilt from scratch, aside from which technological changes occur so rapidly that top blockchain developers regularly familiarize themselves with updates.

Want a top developer? Expect to pay $250,000-$450,000 for a whiz, or triple that for a world-class specialist, according to Pavel Supronov on Medium. You think blockchain saves you money? According to John Levine, crypto consultant, author, and speaker, blockchain is the most expensive database ever invented.

Is your blockchain for innovation?

To get some ROI from your blockchain investment, you need some really BIG idea that’s stupendously different than competitors and that delights hordes of people. (Think of a Ripple or Binance).  Such a feat, according to Winkers, is performed by only two out of every hundred ICOs or startups.

In all my years,” Winkers told me, “I’ve only found one ICO that makes sense, and that’s the one I’m with right now. A Russian company called Visor looking to create a payment coin. I’m providing some technical guidance, more on the architecture side. I think they have a good team that understands the need to meet the underlying business needs. It’s not about them having a big payday.”

Winkers added:

I regularly tell businesses not to proceed with Bitcoin, but to focus on more conventional solutions. I try to help them customize their business, figure out what they can do.  Unfortunately, most people who approach me are dazzled by Bitcoin and the ledger. They don’t understand it… but just about everyone’s doing it so they want on the bandwagon. Now if they’d have a wonderful remarkable useful idea that may be one thing, but they often emerge with impractical, unfeasible ‘solutions’, so it’s a waste of their time and money.

At the end of the day, if your mind is on blockchain for fame or money, Winkers doubts you’ll succeed. You’ll want to have a solid idea that makes sense and that lasts for decades.

Blockchain to save you money?

How about if you don’t want to innovate but are sold by the blockchain hype and want blockchain to expedite your business? Say, you’ve read reports like that by management consulting giant Accenture and McLagan who insisted that blockchain promises cost savings of 70 percent or more in finance areas? Or you read the 2014 EY report how blockchain-based businesses outpace competitors?

Well, blockchains have certain problems that you’d want to know about…

The National Institute of Standards and Technology (NIST) – a non-regulatory agency of the U.S. Department of Commerce – recently released a report for beginners to blockchain and business owners often tempted by new technology.

The report pointed out that blockchain can’t control users’ conduct.  The NIST also highlighted the misconception that blockchain is “trustless” – you need a great deal of trust in the technology, developers, and user cooperation for the blockchain to function. Further, users must manage their own private keys that, once lost, are harder to recover than usernames or passwords on centralized platforms.

Additionally, blockchains are massively inefficient. Set up a blockchain and you’ll need each and every user to archive, and constantly update, a complete history of all that’s happened on that blockchain. 

Finally, but not conclusively, blockchains also require a computational challenge to restrict the creation of new blocks. If it’s too easy, hackers could temporarily mobilize enough computing power to rewrite history; if it’s too hard, each new block will consume megawatts of electricity. And electricity for blockchain costs hundreds, if not thousands, of dollars.

On the other hand…

As we speak, blockchain improves all the time. More modern technologies produce decentralized platforms that have more bandwidth, are faster, more convenient, easier to program. IOTA, for example,  uses a “blockchain” that isn’t the traditional format but a new one called Tangle that knocks out the expense and time of mining. IOTA transactions are super-fast and process several transactions simultaneously.  Its structure perfectly suits the Internet of Things (IoT), where products and appliances like cars, home appliances and machinery “tangle”. Businesses on  “next generation” blockchains like IOTA report a smooth, fast and cheap experience that almost resembles that of the Web.

So to blockchain or not to blockchain?

A unanimous decision tree floating the Web may resolve your problem.

Ask yourself the following:

  1. If you need a database, are all the writers or participants on your team known and trusted? Is there anything you need to hide? Do you need to hire, or involve, trusted third parties? Do you need to control functionality? Are your transactions private? If your answers are a flat “no” to each of these questions, either stick to a standard database or use a public blockchain.
  2. Does more than one participant need to be able to update the data? Do you need to hire third-parties whom you’re unsure whether you can trust? Do you have any confidential data? Do you and all the updates on your team barely know one another or have some qualms of one or more users? If you answered “yes” to one or more of these questions, use a permissioned or hybrid blockchain.
  3. Does the data need to be kept private? Do you need to control who can make changes to the blockchain software? Do you have the money for blockchain programming and continuous maintenance and upgrades? Consider a private blockchain.
Do you even need Blockchain?

Even then Winkers would tell you to mull your decisions carefully. 

“I’ve always worked to make sure that small businesses aren’t taken advantage of by others in the technical fields,” he told me, “And that includes blockchain. For some it’s the right path, for others, it’s a costly diversion.”

“ICO companies that invest in blockchain have a 98% failure rate. That’s not the route,” Brian insisted, ”that I’d want to take.”

 

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