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A Summary of

The truth about blockchain

by
Marco Iansiti, Karim Lakhani
Harvard Business Review
View original

Truth about blockchain technology and a framework for guiding investment.

Contracts and transactions

  • Blockchain solves regulation in a digital world
  • Can record transactions efficiently and verifiably
  • Contracts can be embedded in digital code and stored safely
  • Lawyers, brokers, bankers may no longer be needed
  • Blockchain is a foundational technology

Patterns of Tech Adoption

  • TCP/IP was a foundational technology for the internet
  • Turned previous model on its head
  • TCP/IP was open/public network and looked at with skepticism
  • Burst into broad public use with advent of WWW

New architecture

  • Blockchain is a peer-to-peer network similar to TCP/IP
  • Bitcoin was the first application of blockchain technology
  • Enables bilateral financial transactions
  • Can reduce costs
  • Has potential to become the system of record for all transactions
  • As transactions occur records are permanently changed in ledgers
  • No need for intermediaries
  • Blockchain would settle transactions within seconds.

Framework

  • Two dimensions: novelty and complexity/coordination
  • Quadrant framework that maps innovations against these two dimensions

Single use innovations

  • Low-novelty and low-coordination
  • Less costly, highly focused solutions
  • Email as a cheap alternative to phone calls

Localization

  • High-novelty and low-coordination
  • Financial service sector using small network of firms

Substitution

  • Low-novelty and high-coordination
  • Build on existing single use and localized applications
  • Involve broader use
  • Aim to replace existing business models
  • Cryptocurrencies aim to replace currency

Transformation

  • High novelty and high-coordination
  • Could change existing economic, social and political systems
  • ‘Smart contracts’ automate payments and the transfer of currency as negotiated conditions are met

Blockchain Investment Approach

  • Start with single-use applications which minimize risk
  • Localized applications as next step for companies
  • Substitute applications require careful planning
  • Transformative applications still far away

Conclusion

  • With this framework executives can figure out where to start investing in blockchain technology
  • Must carefully assess risks
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