Blockchain - alignment is critical

As a keen blockchain market observer I wanted to write about what I consider to be the number one critical factor for success. You must align your market ambition with your governance model and with the underlying ledger capability. A market ambition at the level of the whole industry will not work with a governance model appropriate for niche member benefit only. Kinda obvious really but it still happens.

Blockchain critical success factors include an alignment of target market and outomes with governance model incentives and underlying ledger capabilities.?

The role of the private permissioned networks is not at the level of an entire industry but rather a niche. Network effects are limited as the governance is less open and fewer business models will share the infrastructure. But this network can be an on-ramp to digitise ERP data to use in open marketplaces. I think at the very centre of this lies the incentive to collaborate and at scale. I think it is impossible to do this without a token. Yes, you can build a token on permissioned rails, but can you scale to get network effects of hundreds or thousands of enterprises in this model in a totally open and neutral way? My experience is that you can't. Therefore, you have built a valid sub domain on the new internet - an intranet if you will - but you built a LAN, not a WAN. So, with enterprise blockchain you are fixing the world as it is, not building a new world. Very useful, very helpful, very valuable - but optimisation, not web3 transformation.

1. Target market is niche

If your target market is niche optimisation of the world as it is, then the governance model is limited to niche market participants with fairly aligned incentives to collaborate. Decentralisation is low. Underlying capabilities include optimisation through a common shared decentralised and distributed view of the truth. Privacy and security perhaps using channels, hashing and offchain data stores or fine grained partitioning of blockchain to individual nodes using a DAG-like architecture. Identity and access management is permissioned using credentials from known (permissioned) issuers at all times using the full issue, hold and verify cycle. Network effects are low limited to a single business model and little reuse or composability.

2. Target market outcome is a whole industry

If your target market is at the level of a whole industry then the governance model must be open and neutral with fair incentives. Underlying capabilities include optimisation through a common shared decentralised and distributed view of the truth. Privacy and security perhaps using channels, hashing and offchain data stores or fine grained partitioning of blockchain to individual nodes using a DAG-like architecture. Identity and access management is permissioned using credentials from known (permissioned) issuers at all times using the full issue, hold and verify cycle. Network effects are achieved through multiple business models competiting in an open (permissionless) marketplace using composability and reuse of business function. Finality must be established with key miners. We have a hybrid of permissioned & permissionless.

3. Target outcome is new markets

If your target market is industry reinvention then governance model must move to a Decentralised Autonomous Organisation - a DAO - governed with the DAO's token. Decentralisation is high. Underlying capabilities include reinvention through new tokenisation liquidity & monetisation models. Privacy and scalability perhaps using ZKP and permissionless level 2 protocols. Identity and access management may be controlled with pseudo anonymous reputation and NFT plus interoperability to credentials from known (permissioned) issuers where required using the full issue, hold and verify cycle. Network effects are achieved through multiple business models competing in a marketplace (edit) using Automated Market Maker (smart contracts) to make the market price and using composability and reuse of business functions.?

This is an extract from web3 for enterprises, coming in early 2023