Opportunities within the adoption of distributed ledger technologies.

Distributed ledger technologies (DLT), such as blockchain, are an infrastructure. It’s a means of creating a decentralized network in order to create safe and secure peer to peer transactions. Within the DLT ecosystem—there is massive opportunity for utilization and growth. DLT is a prolific technology change, and one which will have major implications on the world. Like any significant infrastructure change—there will be issues that need to be resolved before wide scale adoption occurs. Three broad, but critical issues are the following: Standardization, Regulation, and Workforce/knowledgebase.

Standardization: 

In order for peer-to-peer networks to be successful, they need to reach a certain critical mass of users. In order for there to be a critical mass of users, there needs to be a user-ecosystem of applications and services rendered on a DLT system. This means companies and institutions need to adopt DLT and build business strategy around it. In order for companies to build DLT solutions—they need standardization. Without standardization—there will be a host of interoperability problems, and these interoperability pains will be passed on to the consumer. Go to any household, and I’m sure there is a drawer or cabinet filled with electronic’s dongles. Think of the plethora of chords: battery chargers, phone chargers, micro USB, USB, DC adapters, AC adapters, different chords for apple devices, different chords for Samsung devices, etc. This list could obviously extend very, very long—especially if you have accumulated dongles over a 10 year period. How do we avoid this problem with DLT? 

DLT needs to be very consciously designed, and it needs to be designed with standardization in mind. This standardization effort is going to require a significant open source community. This means competitors are going to need to play nice in the sandbox with one another—if they don’t, it will only hurt the consumer. If the consumer is too impacted, DLT becomes impractical and hence will never (or maybe it will go more slowly) reach the critical mass that is necessary for wide scale adoption. 

Fragmented ecosystems are a massive risk to DLT.

There also, like any major infrastructure change, needs to be very conscious design around standardization of supporting services. DLT is just a historical representation of transaction. It’s simply information. There needs to be the correct processes stood up to manage the identities of the information. There needs to be the proper processes stood up regarding privacy, and the management of those users (this will also need a regulation strategy which will be discussed later). Also, like any ledger, whether it is handwritten, in a central database, or distributed—there needs to be standard policy around the data and governance of the data.

An area that I am particularly concerned about is the administration and management of the access keys. Today, there are people who have a cognizant and thoughtful system to manage their keys and passwords—but I would argue that group of people is not the majority. One can build as secure of a system and architecture as they want, but those systems still need to be accessible to be valuable, and that access is predicated on personal responsibility to a very large degree. The Trojans built a very mighty wall—and for years were able to repel the Macedonians. Brute force couldn’t bring it down. Ingenuity, however, did (Trojan horse). How people manage their keys needs to be standardized and taught. As of January 8th, 2018—the current cryptocurrency market valuation is $752,000,000,000. $752B is a very alluring target for hackers, and while it may be very difficult to hack and break a system as infallible as DLT, it’s still very easy to hack personal accounts of people irresponsible with their identity and passwords. 

Another important standardization will be procedures on the handling of the loss of keys; whether they be forgotten, lost, stolen, etc. With the growing number of different currencies on the market, a market-standard approach to this will help create a fair and systemic approach to key recovery.

Regulation:

It will/is happen(ing). In the United States, the SEC has already created an organization responsible for investigating fraudulent activities associated to Crypto. Anytime you’re dealing with open (yet anonymous) access to information and money—it’s going to invite a host of issues. Data laws internationally are very immature—and data laws are also not standardized across countries. China, for instance, has banned the trade of crypto currency—India is moving the same direction. 

Part of any plan to adopt DLT needs to have strategy regarding regulation. 

How and what industry are you intending to leverage DLT? If for currency, this brings up many international legal issues. In many countries, it is illegal to create new tender. If you’re looking to leverage it for smart contracts—regulation is going to be very dependent on the nature of what’s being recorded. Smart contracts allow for the transmission of property—and most countries are going to have contract and tort laws as well as regulation around the exchange of property. As such, it’s going to be important for organizations to thoroughly research and investigate which regulations may apply. It’s also important for them to know these rules and laws so that they can create the right pre-conditions for automated acceptance of the smart contract—but that’s likely a topic for another day. 

My recommendation would be to build a strategy that is ethical and as such resilient to regulation change. Hope is never a good strategy, and one should plan around regulation changing. A strategy of adaptation is important. This will vary from use to use—but it would be worthwhile to play chess with this and not merely checkers. How will changes in policy impact your business if your business is dependent on DLT? How many different legal jurisdictions is your service extending to? What policy is currently being discussed by lawmakers? What lawsuits have there been that may be similar to your use? What negative impacts will regulation have on your strategy? What positive impacts will it have on your strategy? What’s important to be regulated?

The important thing to keep in mind is that regulation is designed to protect people and institutions within the context of fairness and the law. Do regulation always work out this way? Probably not, but that’s the intent. The bottom line is that DLT is a relatively new technology, and as such, regulation hasn’t caught up to it yet. Let’s learn from a similar instance that happened not too long ago. One of the first popular peer-to-peer networks was Napster. It allowed for users to share music with one another across a distributed network. Napster didn’t have a centralized database, it merely helped create a network platform where users could interact freely. What happened next? How many copyright infringement lawsuits were there? Who got upset from all this? How many arrests were there? It took a while for law and regulation to catch up with the technology, but when it did, it crushed Napster. Don’t just hope—think and plan.

Workforce and Knowledgebase:

This is going to be a challenging issue for the early stages of DLT. There simply aren’t enough people who know this technology to help companies adopt and deploy it—let alone develop meaningful strategies around it. This will be a major restriction to wide scale adoption of DLT, which is critical for it to become more ubiquitous. 

There will be companies and groups that will create DLT as a Service (DLTaaS?). This will help spread the ecosystem. There will also be opportunities for companies to form consulting and strategic advisory practices who can help companies and institutions build out their DLT strategy. The challenge with this is basic supply and demand. There will be a large demand for this type of service and a woefully small supply of competent service providers—as such, they will be expensive (most likely prohibitively so). 

There is no one easy solution to this problem. With that said, I think Elon Musk provides a very interesting case study for this community to look at. Musk spent a lot of money developing a very impressive array of technology around batteries and electric engines. From that research came a wealth of patents—and those patents were not cheap and easy to come by. Most organizations horde their patents and will protect them within every means of the law. Why then did Elon Musk release a significant portion of his patents out into the industry for free? He could have made huge royalties off of these patents. The simplest answer to this question is that Elon Musk understood his competition wasn’t other electric cars. He wasn’t competing against the Prius—he was competing against combustible engines. The marketshare to take from combustible engines far exceeded the marketshare for electric vehicles—but consumers needed to feel safe investing into electric vehicles. See the growth trends of EVs on the chart below. 

Source: https://cleantechnica.com/2017/02/04/tesla-model-s-clocked-as-worlds-best-selling-electric-car-in-2016/

Electric cars need an infrastructure to run. If they don’t have an infrastructure, they aren’t practical for their owners. How many gas stations do you drive by on your way to work? An electric car ecosystem is mostly privately owned. If people see an opportunity to capitalize on a growing space, they’ll build the ecosystem that supports it. For them to do this, there needs to be a sufficient number of customers in order for their investment into building this infrastructure to make sense. Musk realized that he needed more electric cars on the road—and as such, he gave away hundreds of millions of dollars worth of research for free.

I’m not arguing that everybody should be giving away their DLT secret sauce—but with that said, the open source development and maturation of DLT is necessary for its wide spread adoption. Without widespread adoption, DLT will be limited in its use and effectiveness, and as such—it will be a much smaller and less profitable industry. 

Conclusion:

To sum things up, DLT is an incredibly exciting technology (I’ll try to write a bit more on its uses and why I feel that its such an important change in the way the world works)—but DLT is currently in a very immature ecosystem. This ecosystem needs to be cultivated. This cultivation will help advance DLT into a critical mass which will accelerate its path towards wider spread adoption—which will then allow it to have a huge positive impacts across our systems of transaction and trust. Standardization is going to be an important component of adoption and use—without standardization, organizations will adopt technical debt and the consumer will be frustrated by lack of compatibility with the way they like using things. In terms of regulation—organizations need to be thoughtful about the way that they deploy DLT and understand the environment (and future environments) that they will be utilizing DLT within. Rather than bash on regulation and resist it—instead build a constructive strategy towards making sure regulation has a positive effect across the business versus a negative one. Finally—knowledge of DLT and the number of technically knowledgeable SMEs around DLT is going to be a major restriction towards its adoption—in order to accelerate this, this community will necessarily need to develop a collaborative open source strategy.