Where is the road to the business model of blockchain?

I. Introduction

In February 2021, the US blockchain media Coindesk quoted four people familiar with the matter as revealing that IBM will abolish the blockchain department, and the head of IBM blockchain Jerry Cuomo has also been transferred and given a new role. Subsequently, Holli Haswell, the director of public relations at IBM, came forward to deny the rumor and reiterated that Big Blue is still committed to the development of the blockchain ecosystem and services. However, according to insiders, IBM did carry out a series of “Resource Action”, and Haswell also admitted to readjust some leaders and business units to continue to promote growth.

People familiar with the matter analyzed the reasons and believed that since 2016, IBM has invested a lot of money in the blockchain and has high expectations for it to change the business model of the industry in the future. But as far as the actual effect is concerned, IBM’s blockchain innovation work is now limited to some research and development, not even extended to consulting. Judging from the FoodTrust for Wal-Mart’s food traceability, the TradeLens for Maersk Container Logistics, and the TrustYourSupplier network for supply chain management launched by Giant Blue, they are just a supplement to the original industry information system, not changing business model. Ethereum V God bluntly stated that IBM’s various enterprise-level blockchain applications “do not catch the focus” and “waste time”. There are also many opinions in the industry that IBM’s layout is not a real blockchain. Coupled with the impact of the epidemic, IBM’s overall revenue will drop by 6% in 2020, so it is easy to understand the adjustment of the blockchain department by Giant Blue.

The troubles of the blockchain business model are not only IBM, but the domestic blockchain industry development dilemma is even more obvious. Not long ago, the 2020 annual report of Yijian shares, the first blockchain stock, was announced, showing a direct loss of 11.5 billion. Yuan, the company’s net assets have directly changed from 8.6 billion to a negative 3.5 billion. Yijian shares, once famous for blockchain supply chain finance, have a market value of up to 20 billion yuan. And other listed companies with the concept of blockchain, the main income of the blockchain is even more lackluster. Will the blockchain be like big data and artificial intelligence, after the technological wave, will there be nothing left?

It can be said that if the exploration of the blockchain business model is not accelerated, the blockchain technology will surely return to the dust after a period of uproar! Different from the big data, artificial intelligence and other industries that have at least technical practicability after the bubble, they will still be a hot spot for domestic digital transformation in the future. The essence of the blockchain is to be born for innovative business models, and there is no need for a blockchain without a business model.

2. The well-known blockchain business model

The “Business Model Innovation White Paper” written by Harvard University professors Mark Johnson, Clayton Christensen, and Henning Kagermann summarizes the three elements of a business model as: “Customer Value Proposition”, which refers to a company providing services or products to its customers or consumers at a given price The task that needs to be completed at the time. “Resources and production processes” are specific business models that support customer value propositions and profit models. The “profit formula” is the process used by an enterprise to realize economic value for shareholders. At present, the blockchain business models that we are familiar with mainly include: service middle price model, infrastructure model and digital currency business model, etc.

1. Blockchain service middleware model

Represented by IBM Hyperledger and the secondary development of blockchain products using Hyperledger as the bottom layer, most of them regard blockchain technology as a kind of service technology middleware. The business model is mainly the blockchain products and integrated services provided to ToB or ToG customers in traditional IT systems such as government affairs, finance, and supply chain. At present, in the traditional IT information circle, there is still this view of the blockchain as a “shared database”. I have already published in the ” Blockchain Hardcore Analysis (1): Is the Blockchain a Shared Database? The error is analyzed in the article, so I won’t repeat it here.

As a service middleware, blockchain is in line with its technical characteristics and positioning from a technical point of view. Because the demand for the display layer of the blockchain is relatively weak, it is more through the chain data structure and distributed consensus and other back-end services to achieve its characteristics. The blockchain storage itself also needs database products, whether it is a relational database: MySQL, or a KV database: LevelDB, RocksDB, etc., the blockchain itself only exists as a middle layer of business services.

However, as a service middleware, blockchain is embarrassing from the perspective of business model.

First of all, in a centralized enterprise or platform, to promote a distributed deployment of trusted collaboration middleware products, lack of actual requirements, there is no lack of trust in an intensive enterprise.

Secondly, the blockchain is not an effective tool for efficient information transmission and storage. For example, the algorithm complexity of PBFT is O(n2), and n is the number of distributed nodes, which means that the complexity is squared, and the more nodes there are , The more complex the algorithm, the lower the performance, so companies will not choose the blockchain solution when considering internal drive-type business demands that reduce internal costs and increase efficiency.

Finally, as a blockchain service middleware, it can only collect product sales fees and technical service fees from companies or governments. This is also the most common business model for traditional IT software vendors. However, at the time when technology open source software is prevalent, especially in projects that use Hyperledger as open source code, compared with traditional ERP, CRM and other products with very strong business cohesion, business vitality is very fragile.

In summary, from a technical point of view, blockchain can indeed be regarded as a trusted service middleware. However, this positioning has limited commercial potential. In actual product promotion, its distributed architecture model and middleware business model are in contradiction, and the market lacks a consensus on the “customer value proposition”.

2. Trusted Infrastructure Model

In China, the development of the blockchain industry is affected by national policies, and there are still policy-based business models, especially after October 14, 2019, all provinces across the country have announced their own special plans for the blockchain industry. In April 2020, the National Development and Reform Commission officially included the blockchain in the “new infrastructure” category. At the same time, the blockchain-based service network (BSN) co-sponsored by China Mobile and China UnionPay, led by the National Information Center, was officially put into commercial use. At first glance, the infrastructure construction of the blockchain has been very effective. But the author carefully read the BSN technical white paper (the 9-page technical white paper is the shortest I have ever seen!) The conclusion is that BSN is just a multi-city communication network that supports multi-city nodes, and its essence is network communication. Technology. When the blockchain business model is not yet clear and the value proposition has not yet reached a broad consensus, the deployment of cross-chain nodes across the country is online. It is difficult to imagine what kind of blockchain applications will run on BSN and what kind of business The scene needs to be “cross-chain”, what is the actual commercial value?

It is undeniable that the inclusion of the blockchain in the category of “new infrastructure” will promote the development of the blockchain industry. But in terms of what the blockchain is, where the value is, and what commercial problems can be solved, I have hurriedly launched the blockchain infrastructure without seeing a clear idea. How can the actual effect be guaranteed? Interested friends can refer to the current embarrassing situation of Guiyang Big Data Exchange.

From the perspective of the blockchain technology itself, it is far from reaching the point of technical standardization, regardless of whether the consensus protocol adopted by the public chain ranges from PoW, PosS, DPoS, etc., or the alliance chain adopts Kafka, Raft, PBFT, and various improved PBFT types. There are endless changes and innovations in block data structures, global status, ledger models, privacy protection schemes, etc. according to actual business needs. The unification of technical standards does not seem to be the time yet.

If the blockchain is regarded as an infrastructure (I also classify the BaaS-based blockchain as an infrastructure model), although the concept is correct, it is necessary to see what kind of infrastructure the blockchain is. The concept of infrastructure in the “new infrastructure” is the concept of a national construction plan, not the concept of technology layering or the IasS layer in cloud computing. The blockchain technology itself is not a certain underlying technology or protocol. The term blockchain is also the collective term for this kind of peer-to-peer transaction system implemented on the basis of a distributed consensus mechanism and chain structure after the advent of Bitcoin, R3 Corda The blockchain structure is not adopted. In fact, everyone thinks it is a blockchain. The blockchain itself is only a combined application system of a series of distributed technologies, not the infrastructure of the network layer, transport layer or operating system level technology that we generally understand. Therefore, if the blockchain is regarded as a “new infrastructure”, it can only be regarded as an application-level infrastructure such as hospitals and schools. Blockchain also relies on traditional Internet protocols, operating systems, databases and other infrastructures. Blockchain has not created a new type of network structure. At present, it is often heard as “interchain network” and “next generation Internet”. Calculate marketing discourse.

To sum up, to treat the blockchain as the underlying technical infrastructure is putting the cart before the horse. The blockchain itself is an integrated application of a flexible combination of underlying technologies. The combination and integration point is at the application layer, rather than the computing or network infrastructure layer. That is to say, the blockchain is based on the front-end business environment, combining and integrating distributed on-demand Application model of technology. If the blockchain is simply operated as the underlying infrastructure, since it does not produce a different value proposition from the traditional Internet and cloud computing technology, it is difficult to truly form a successful business model.

3. Digital currency business model

Regardless of the official definition of digital currency, its related business model satisfies the three elements of the business model of “customer value proposition”, “resources and production process”, and “profit formula”, which deserve our careful analysis. The digital currency-related business model is currently the most successful model in the blockchain industry, and Bitcoin is also the most successful blockchain application. Regardless of whether it is a mining mode, a currency issuing mode, a DeFi mode, or a digital currency transaction mode, the key to success in the digital currency circle is to attach the business model to the blockchain distributed computing model to form a digital currency as the main body Value proposition. The business models of mining mode, currency issuance mode (ICO), DeFi mode, and digital currency transaction mode are all different, but the same is that the value proposition is to establish a business model centered on the value of digital currency. In contrast, the “blockchain service middleware” and “trusted infrastructure” models lack business models and effective core value propositions.

Take Bitcoin as an example. In the mining model, the core value is the market value of the digital currency, and the business model is the proof-of-work model; in the ICO model, the core value is the expectation of the future market value of the project, and the business model is a reference The essence of the IPO has nothing to do with blockchain technology; the DeFi model is a concept that has become popular in recent years. Its core value is contract transactions, and the business model draws on traditional financial derivatives transactions; the core value of the digital currency transaction model is the market value of the currency The expectations are poor, and the business model is an auction trading model.

It is not difficult to see that the core of the success of the digital currency business model is that the value proposition is recognized by customers, the technical realization is guaranteed, and it also has a mutually beneficial business model for all parties. However, the digital currency business model has great limitations. It is limited to business models related to currency value and cannot directly guide the application development of the blockchain industry. This article aims to explore the success factors in the digital currency business model. Discover the development path of the blockchain industry.

Third, look at the blockchain business model from the perspective of a business intermediary

1. Decentralization does not mean disintermediation

In the past, when analyzing the successful model of digital currency, more people believed that the technical attributes of blockchain decentralization and disintermediation played the core center. However, careful analysis will reveal that the digital currency business model is full of A large number of intermediaries, such as exchanges, wallets, financial institutions, mining farms, etc., are undoubtedly the intermediaries in the digital currency network. The digital currency production end is the blockchain network, and the consumer end is the user. The currency market will not be as prosperous as it is today.

Decentralization is a technical concept, and disintermediation is a business concept. The two are often confused. Decentralization emphasizes the availability and partition fault tolerance of the system, and the individuals participating in the computing network have independent control and decision-making capabilities that are not interfered by other individuals. And disintermediation emphasizes the flatness of the business model and the symmetry of information, and the buyers and sellers of commercial transactions directly realize the transaction without the participation of a third-party intermediary. In blockchain fundamentalism, disintermediation is the ultimate goal pursued by network builders, but no matter Bitcoin or Ethereum, it is precisely these intermediaries that really make the network prosper. Satoshi Nakamoto’s original intention is The establishment of a “point-to-point electronic currency payment system”, but in essence, currency transactions need to be completed by multiple intermediaries such as wallets and exchanges. The more complex transactions, the more intermediaries are required.

Therefore, in a decentralized distributed network, it is not necessary to disintermediate. Decentralization is based on the consideration of system availability and partition fault tolerance, and whether to disintermediate or not is a pure business model requirement.

2. A prosperous business model is inseparable from intermediaries

The “principle-agent theory” of modern economics explains the intermediary mode phenomenon very well, which is the inevitable product of the “specialization” and “division of labor” of business behavior. The asymmetry of information is an inevitable phenomenon in the initial stage of information transmission, and it is completely natural, and the intermediary mode is the main means to undertake the symmetrical transmission of information. The rich products brought about by the industrial revolution are passed through a large number of intermediaries to pass the value of the products to the hands of consumers. Among them are the direct value of the products and the indirect value after brand operations.

If we regard commodity transactions as the own behavior of both consumers and producers that have nothing to do with third parties, we will find that the basic demands, the ability to manage information, and the symmetry of information are completely different between buyers and sellers. of.

First of all, from the perspective of basic appeals, consumers are commodity-centric (based on the marketing concept is also a product, just to distinguish from the producer’s appeal, the commodity concept is used here), and the focus is on the maximization of commodity value, including direct value and Indirect value. The producer takes the product as the center and pursues the maximization of product value, mainly direct value. Sometimes these two demands still have contradictions and need to be reconciled by a third party. For example, the production line needs continuous production to reduce costs, and this will bring a large amount of inventory, then the intermediary assumes the function of inventory elimination.

Secondly, from the perspective of the ability to manage information, ordinary consumers can clearly know the consumption and use information of commodity prices, functions, etc., but cannot manage commodity price composition, functional composition, and production composition; while producers are good at management Production composition and function composition information, but unable to manage consumption and use information. This is also the reason why consumers are indifferent when products provide a lot of documentation on product attributes and production attributes. In recent years, it has become popular to use big data, AI, blockchain and other technologies to directly empower producers and consumers and provide a large amount of data at both ends, but with little effect. This is because technology can provide a large amount of data, but it cannot change the ability of producers and consumers to manage data into useful information. Successful business models mainly come from the instinct of interaction between people and society, rather than from a technological innovation.

Finally, from the perspective of information symmetry, commodity information is naturally asymmetric between producers and consumers. There is uncertainty and attenuation between the generation and transmission of information, so whether it is the production information of the producer or the consumption information of the consumer, there is a real environment of information asymmetry in terms of the subjective initiative of information symmetry and the realization of objective technology. It is unrealistic and unfeasible to emphasize absolute information symmetry. This is like passing the washing machine usage data to the washing machine manufacturer. The demand for improving the quality of the washing machine is not the subjective demand of consumers.

In summary, it can be concluded that the prosperity of business is inseparable from the participation of intermediaries. Whether it is traditional commodity distributors, agents, franchisees, e-commerce platforms, live broadcast platforms, etc., they essentially provide intermediary services. While transmitting the direct value of the product, it also adds a large amount of indirect value, thus forming the value of the commodity that consumers pay for. If you want to completely disintermediate, you may have to return to the bartering era in primitive society.

3. Blockchain-based intermediary is a more transparent and secure model

Since intermediary is an inevitable element of a prosperous business model, why is it still criticized by the world, calling for de-intermediation? This is because information asymmetry has formed an intermediary model, but intermediaries can create information distortions between producers and consumers by maliciously blocking the flow of information or creating false information, thereby disrupting the original market balance of supply and demand. In other words, when the intermediary relies on false information to obtain more benefits than the original formal channels, the intermediary will not hesitate to choose to do evil.

In the past multi-party game process of producers, intermediaries, and consumers, a brand-new intermediary was gradually selected to restrict such intermediaries from doing evil. This is the platform economy of the Internet. The platform economy is essentially a larger and more centralized intermediary. It has indeed played a role in regulating the market in the early stages of development, and a high degree of intensification has greatly reduced the cost of commodity circulation, thereby promoting the return of commodity price fluctuations to a reasonable space.

However, the inherent intermediary nature of the platform economy is destined to have a natural game process with producers and consumers. When the platform economy has absolute control over the production and sales of goods, whether subjective or passive, information blocking and false information will once again be formed, so as to maximize the benefits of platform gaming. Typical examples are “transitional marketing” and “marketing involution”. In these scenarios, the platform serves as the only value circulation channel at both ends of production and marketing, providing stimulus producers with lower prices and stimulating consumers’ higher spending power. On the one hand, maliciously create a tense atmosphere and oppress the value output at both ends of production and sales, thus forming a “face-stick” value model with small ends and large middle ends. Recently, various Internet platform problems have been exposed, such as monopolistic behavior, unfair price behavior, unfair competition behavior, and abuse of private data.

In the environment of platform traffic economy, the main criticism of platform-based intermediaries by product manufacturers and service providers is still the problem of “traffic theft”. Simply put, the platform provides traffic portals for product manufacturers and service providers in the early stage. In the middle and late stages, product producers and service providers also contributed traffic to the platform, but did not enjoy traffic dividends. Product producers and service providers believe that their own high-quality products or services have led to other products and services sold by the platform, while the platform believes that the value of traffic is derived from its own operational investment, and there is no reason to share dividends with others. This problem cannot be solved in an intensive platform economy.

The blockchain-based distributed intermediary platform economic model is to transfer marketing authority from a single centralized platform to multi-center platforms, micro-businesses, local e-commerce or product manufacturers and service providers. Through the complementary features of product value, the model of product value drainage instead of simple information matching and drainage can be realized. The blockchain-based distributed marketing plan distribution, event execution and revenue settlement system provides a distributed intermediary platform with transparent, credible, fair and co-operating, and value-creating cost accounting, traffic conversion, transaction certification, and revenue accounting. The core value proposition and the business model based on traffic conversion, so as to add a business model on the basis of blockchain distributed certification, so as to realize the real blockchain business value output.

Four, summary

The blockchain distributed intermediary platform economic model proposed in this article is just a specific example of blockchain technology empowering the real economy, just like the relationship between digital currency and blockchain technology, the core value propositions in the digital currency business model, The business model of distributed technology guarantee and mutual benefit of all parties is an application example of blockchain technology in the field of distributed finance. Since the blockchain is an application-level infrastructure, not a low-level technical infrastructure, leaving the business field to talk about the development of the blockchain industry is undoubtedly equivalent to a castle in the sky. The road to the blockchain business model can only meet the three elements of the business model through the distributed modeling of the industry domain model and superimpose it in the blockchain distributed certification system, and the development of the blockchain industry will have a future. Due to space limitations, this article cannot further elaborate on the specific structure of using blockchain to build a distributed intermediary platform service ecology. I will gradually improve its model and framework in subsequent research papers.

 

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