Stephanie Hurder is the Founding Economist and Partner at Prysm Group. She’s also a CoinDesk columnist and an academic contributor to the World Economic Forum. In this podcast she joins us to discuss a recent article she published in CoinDesk entitled “Why Enterprise Blockchains Fail: No Economic Incentives”.

 

What is blockchain?

Blockchain is a type of distributed ledger. A ledger is a database, which is usually maintained by a single organisation like a bank to track the ins and outs of our bank account. The bank is responsible for maintaining and updating that ledger.

A distributed ledger is a shared ledger where multiple different stakeholders, such as banks or insurance companies, collectively control and update the ledger. They have a process called the consensus process, where in order to make a change or an update to this shared database, there needs to be a certain level of agreement among the different stakeholders. This ensures that not a single organisation or entity controls this shared database.

Blockchain is a particular type of shared ledger in which though the transactions or the updates to the shared ledger are processed in blocks. Smart contracts is a feature that often is associated with blockchain.

 

Enterprise blockchain is in the doldrums

On the 2nd of March 2020 Stephanie published an article on CoinDesk entitled “Why Enterprise Blockchains Fail: No Economic Incentives”. In the article she stated why “Enterprise blockchain is in the doldrums”.

As an active participant working in many different blockchain projects Stephanie noticed a familiar patern where numerous enterprise blockchain initiatives, often established by consortia, would announce that they have a proof of concept or that they’re going to do a pilot for a specific use case. But then a year later many of those pilots would either fail to launch or wouldn’t work.

Blockchain has the ability to deliver a lot of economic value to consortia and groups using it to solve business problems. However, it is very important for all the parties to be very clear about what is driving the value creation and who benefits from it and how that value is being distributed. Without a clear understanding of that, it becomes very difficult to set up the necessary infrastructure for a successful project.

 

Blockchain platforms as economic systems

Blockchain consortia are established to create economic value either to help companies save money, allow for synergies, or generate new revenue opportunities. There’s an economic rationale for almost every blockchain project. Members of the consortia have to agree on who are the different stakeholders, their incentives to join and how is value create and distributed.

Stephanie notes that too many blockchain projects take a technology first approach instead of an economic one.

 

Value creation in a blockchain project

In a blockchain based consortium, value creation can be looked at in terms of three layers;

* Value from the features of DLT

* Role of network effects

* Synergies - value, cost and network

 

Value from the features of DLT

The first layer is what is the value that the features of distributed ledger or the blockchain is, that it bringing itself.

The Prysm Group has a framework called the 3 C’s: coordination, commitment and control.