In this fascinating episode we are joined by Andy Martin,  Blockchain Business Design at IBM. For the last three years Andy has been working on how to create business case for blockchain networks. In this podcast he shares with us his deep wealth of experience in how to design effective blockchain business design. This is a must listen to anyone interested in establishing blockchain networks.

 

What is blockchain?

In defining what is blockchain, Andy focuses on private permissioned blockchain whose initial opportunity is in optimising shared business to business processes. Up to now the approached businesses took was in having a central intermediary to act as a central database to smooth out that shared process. The challenge is that both the quantity and the value of data has been growing very rapidly, leading to reluctance in businesses to share that data to a central intermediary.

Blockchain gives us a super elegant approach to sharing this process across the members of an ecosystem in such a way that no one person is in charge of the data. All the members can have a say in how that data is governed and they each have a copy of the ledger. Smart contracts are running on top of it and that is where the shared processes have been codified – who needs to do what to move the status of an asset as it moves across that shared process as trades of ownership of that asset are made. When a trade of ownership transaction is proposed to update the ledger, a consensus mechanism is used, so that all the members of the network can come into agreement as to what is the status of this asset as it as it moves through this process.

Blockchain has created a new asset which is trusted data at the level of the market. Privacy controls are put into place so that only the permissioned individuals are allowed to see the data. This new asset is effectively the foundation stone to truly innovate, to create new types of business and new types of marketplaces. This paradigm shift provides players within an ecosystem an interest to collaborate with their competitors in building that trusted data marketplace to then compete above it whilst combining your firm’s private data and capabilities and combine it with that trusted data.

 

Building business cases for blockchain networks

There are three big areas where building a business case for a blockchain network is different than any other technology:

* Incentive model

* Network effect

* Market level thinking

For any blockchain network you also will need an effective governing body that plays the role of defining the marketplace rules. It needs to be fair and democratic to ensure that everybody gets a fair chance and cut of things and a desire to increase the volume of transactions within that market.

 

Incentive model

Three different types of business cases have to be built to create an incentive model. Each of these business cases have to interrelate and create reinforcing behaviour:

* A solid financial incentive for whatever entity who is going to be bring this network to market.

* A strong business case for each of the members of the network to join it. If members benefit greatly from the network you charge them a fee to join it. Some members may be so valuable to the network that they either have great gravitational pull that they can bring other members to the network or whose data is so valuable that you may choose to give them free access to the network.

* The final case is for those who provides useful data to the network but don’t benefit greatly from being in the network. An incentive model is required for them to join the network.