Do you need a blockchain?

September 10, 2020 Blog No Comments »

Inspired by the questions we’ve heard during Taraxa’s meetups, AMAs, and other community events.

Preamble

Everywhere we go, the predominant question everyone asks when presented with a use case is, “does this really NEED blockchain?” This is an important question to ask, but perhaps it is not being thought of in the right way. We believe a better question to ask is, “Are you adding concrete value by using blockchain?” Here we explore this question a little deeper and share some of our philosophy on what blockchain could be (and are being) used for.


You (almost) never absolutely NEED anything

Perhaps as a backlash to the ubiquitous scams during 2017 and 2018, the crypto community has become far more skeptical (and rightly so) of lofty claims for mass adoption of any decentralized application. But the pendulum has perhaps swung too far to the side of skepticism, as many in the community are asking the question of whether or not blockchain is absolutely necessary, absolutely NEEDED for any given application — the answer is of course, always “No”, but then again, the answer is almost always “No” for pretty much everything in the world.

In economics, a product that is so absolutely necessary that only it can solve a specific problem is a product with no close substitutes. Such examples are extremely rare. Here are a few:

  • Oxygen: you need it to live, and there are no substitutes
  • Electricity from your local utility: large fixed costs & low marginal costs create natural, state-sanctioned monopolies so, you have no choice

There are other examples associated with strong brand loyalty but we won’t go into them. Suffice to say that it is very difficult to find products with no close substitutes. If a problem is truly big enough (painful enough), you can be sure that the world is already addressing it in a multitude of ways.

A blockchain-enabled decentralized system is not exactly in the same category as oxygen — you can easily substitute it with a centralized system. Do you NEED it? Probably not. But then again, you almost never absolutely NEED anything.

Moreover, you especially do NOT NEED any NEW technologies. Since blockchain is new, that’s strike two. Let’s look at why.


Give it time to grow

When new technologies first emerge, they are invariably bad. They are bad not only because the new technologies themselves are immature, but also because the ecosystem to fully take advantage of them does not exist yet. Let’s look at, say, automobiles, when they first came into the world in the late 1800’s.

Poor value: the automobiles at the time were slow, something like 10–20mph slow. A typical horse can easily run 30mph. They were noisier, less reliable, far more expensive to purchase and maintain compared to a horse.

Poor ecosystem: roads were built for horses, not cars. There were no highways, no repair shops or gas stations on every corner. There was a huge ecosystem built for horses and horse-drawn carriages, while there was none for the new automobile.

If you were to ask most people whether or not they absolutely NEED an automobile during the late 1890’s, the answer would be a definitive “NO”. You’d be crazy to say yes — as is the case for most new technologies, including blockchain. In 50–100 years, we can look back and say the same thing about blockchain as we can for automobiles today.

Perhaps then, we should not ask the question “Do you absolutely NEED blockchain”, but rather “Are you adding concrete value by using blockchain?”.


A pain point is an itchy spectrum

Decentralized systems such as blockchain bridge trust gaps. But a trust gap, like all pain points, is usually not so clear cut. Like all pain points, it is less a point and more a spectrum of “itches”. Let’s use a concrete example for one of Taraxa’s use cases to illustrate this spectrum, with identifying details obscured per constraints set forth in commercial agreements (e.g., NDA).

One of Taraxa’s customers is an asset leasing company based in Japan. They have leased these assets on a profit-sharing business model for many years and have not run into any trust issues. Why? Because they had long-standing relationships with their customers, in a mature industry with well-known players, and any potential maleficence is probably small enough to overlook. The trust problem here is an itch, not a pain.

Once our customer started to expand their business into markets beyond Japan, trust broke down. They were working with new partners and customers they did not know. Furthermore, they did not speak the local languages, did not understand the local cultures, and most importantly were facing far more complex business environments with many more layers than they did in Japan. Their customers didn’t report data accurately and didn’t trust any data they collected either. The trust “itch” is becoming a lot more painful.

In this case, Taraxa’s integrated hardware/software blockchain solution acts as a trust anchor, so that all stakeholders involved can at least agree upon the provenance and immutability (see this article for details on IoT data quality guarantees) of the asset-generated data, creating a foundation of trust.

Is Taraxa’s blockchain-bases solution absolutely necessary with no substitutes? Of course not. There exist many alternatives — our customer could charge a flat fee instead of profit sharing, they could significantly slow down their global expansion and slowly build trust with a smaller number of customers, etc. But all of these alternatives have comparatively unattractive economic outcomes.

Let’s go back to the key question, “Are you adding concrete value by using blockchain?” The answer in this case is a resounding YES! The client had multiple tens of thousands of orders (each order for multiple tens of pieces of equipment) which they are unable to fulfill because they would have resulted in financially unacceptable returns due to the trust gaps. Our solution helped them to effectively fulfill these orders, generating huge revenue boosts for them, today.


Seeking concrete value add is just simple, sensible business. It may not be Earth-shattering like the war cry to “decentralized the world”, but it has invariably been the path towards mass adoption for every successful new technology mankind has created.

At Taraxa, we believe in the vision of decentralization, but we are also practical in its implementation.

Stay tuned.


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