Don't be a Sheep with Blockchain, be a Lion.

In 2010 I founded my first company and it wasn’t in blockchain. Now, almost 10 years down the road and several successful ventures later, my CTO Sebastian and I have decided to make finally blockchain our unifying theme. A blockchain love story.

We have spent thousands of hours in client discoveries, workshops, feasibility studies and implementations - for both blockchain and non-blockchain software development projects. 

One Thursday afternoon Sebastian and I sat together with our business development manager and former banker and presented him our new end-to-end tokenization solution. Before we could even get to the end of the presentation he stuttered utterly confused “this damn blockzeug stuff is way too damn complicated”.

That’s when «Blockzeug – The Blockchain Company» was born. We decided to integrate the various ventures we were pursuing under the «blockchain» umbrella and make the tech more accessible and understandable for everyone. 

In 2015 I personally got involved in decentralized technologies and started to invest in both DLT products and cryptocurrencies. Roughly at the same time, a lot of clients started to approach me with their interest in blockchain and everyone told me why they thought the technology would be a game-changer for their company. Effectively everyone wanted to ride the ICO wave that started to catch fire in 2016. 

Fast forward to 2019, the interest in the underlying tech has not diminished in the least, quite the contrary. Even though the client’s beliefs as in how, when and why blockchain should be used differed immensely, they shared a common denominator: most of our clients were not ready for blockchain. Even though all of them should be. Anyway, most of them did not even need a blockchain.

How blockchain developed over time

Blockchain technology grew exponentially in the last 5 years with thousands of projects coming into existence and all major enterprises starting to embrace the panacea of technology. Here is a timeline of the most important milestones:

Since the ecosystem and the applications herein are growing exponentially, anyone who tries to implement a blockchain project needs to be aware of a thousand small and big things.  

To make a blockchain project successful, first of all, you need to understand exactly what your company’s objectives are and what the current IT landscape looks like. The truth is that a lot of blockchain projects do not need a blockchain. You might use one anyway, however, thereby adding a layer of complexity without any benefit.

Long story, short: it is difficult to figure out when blockchain is beneficial. 

Blockchains combine aspects of storage, transaction handling and data distribution which traditionally has been handled separately in different architecture layers. Perse, blockchains are not good at storing a lot of data, handle relatively little transactions and need rather long to synchronize. 

So, why use blockchain at all? On an abstract level, the answer is simple: a blockchain is used to proof interactions between parties (aka transactions), e.g. that Alice sent Bitcoin to Bob. Once the transaction is written onto the blockchain, it cannot be changed. In the purest form, everyone has equal rights: multiple independent parties can append transactions to the blockchain - manipulation or censorship is impossible. Having said that, how do I adapt this to my specific use case now? 

Find out when you need blockchain

We developed an evaluation framework, based on Koens & Poll (2018), to decide if a specific use case should employ blockchain in general and then determine which type of blockchain is suitable. 

Here are some of the questions you need to ask:

• Do you need to conserve a state?
• Which parties need write access?
• Are all participants known/verified/trusted?
• Does your use case require a high transaction or data volume?

The graph below will help you to navigate through the major question sets and find out if and if so, what type of blockchain you need.

Once you have evaluated your use case with this model, it becomes clear if a) you have a blockchain case and b) which type of blockchain is required. 

Assume you have a clear-cut blockchain case, in 8 of 10 cases, you still need to do some IT homework before implementing actual blockchain tech.

In our projects, we had to acknowledge that most infrastructures are not ready to be connected to a blockchain. Too many legacy systems are cobbled together as patchwork solutions. Hence, it is crucial to define clear interfaces for all interacting systems in the first place, for example by defining an API layer and then moving forward with block tech. Once the client’s legacy systems are upgraded, we can then implement a customized blockchain solution tailored to the underlying use case and realize the desired 10x improvements. 

At first sight, this might seem like an over-complicated approach. In reality, it is the only way to unleash the full potential of blockchain. The insights gathered herein give you all the dirty little details you need to move forward.

You will need to decide on technical design and setup aspects on several different levels and dig deeper than you typically do in “classical” software development.

We will not get into too much detail here as these properties differ widely by blockchain frameworks. So let’s have a closer look at the several layers and components we need to take into account. The overview below should give you a rough idea:

Instead of taking a deep-dive here, I would like to share some hands-on experience from our projects. However, if you want to learn more please reach out to me directly.

In honour of our now 50th project connecting European SMBs with blockchain solutions, we decided to open up our book of business a bit and publish a few methods we find useful to avoid stumbling blocks along the way. These lessons mimic our approach to projects and were tested and improved over time. 

1. Ask & Listen: you think you know the problem, but often you do not

Get everyone on board in the early phases of the project. If you do not ask your target audience if they would buy your product before investing time and money into developing the product, you are very likely to build something nobody wants to use or buy. The different interest groups in each project might not behave in line with what you expect, hence, you should always be sure about what they desire. This requires open and honest communication with the key players within your audience. When starting a standardized, well-orchestrated research campaign, you are likely to uncover crucial information and insights. In our experience, many roadblocks can be avoided when you collect and process information from your (potential) audience in a meaningful and efficient way. It is any project’s sudden death if the solution is sidestepped by users due to its impracticality or insufficient performance.

2. Design & iterate: you want a solution that solves your specific problem and usually that is not something off the shelf

Blockchain sounds new and exciting. So very new and exciting in fact that it is often hard to separate the wheat from the chaff. Besides screening potential solution providers you have to look at the solution itself. Often decision-makers feel pressured to adopt new technologies and then fail with their experiment. ‘Technological leadership’ is a badge of honour alongside labels, such as “sustainability leadership” and “customer satisfaction excellence”. Consequently, this enthusiasm often leads to hasty decision making and, thus, even faster buyer’s regret. 

Few companies take the time to analyze their tech setup in depth before scouting for blockchain solutions. Ignoring the existing technological landscape to whatever extent is dangerous and ineffective, to say the least. 

Very often the desired boost in revenue, substantial savings or 10x investment opportunity does not stem from blockchain per se but requires the optimization of existing systems within the company first. 

To dissect an existing IT ecosystem with blockchain in mind requires a broad knowledge of industry standards and technological systems. Only some companies gathered sufficient intelligence yet to offer capacities to dig deep enough into a problem set and then customize a suitable solution for the buyer.

3. Tokenize with care: when you tokenize assets, you want a transferable, tradeable asset, not a headache.

Besides buzzwords such as process automation, cross-border payments, product provenance and automated audit-logs, tokenization is the new kid on the block. Tokenizing assets is what everyone talks about in the crypto sphere. 

And there are already great solutions for that! When conducting a token sale of a tokenized asset, it is strikingly similar to a crowdfunding campaign. You «slice» an asset and sell the shares. That is done by putting a traditional financial instrument, such as revenue participation notes (RPN) in project financing or investment trusts (REITs) in the real estate market, and put that instrument on the blockchain. Now, also small-cap investors can buy and trade that instrument and participate in the asset’s appreciation and profits in one way or the other. Thus, untapped sources of capital can be unlocked.

However, when conducting such tokenization and token sale, there are a million things that can and will go wrong. That is why you want to involve an experienced third party that partly carries the counterparty risk for you.

Smart contracts might not allocate tokens as intended, funds might be stolen or misappropriated, attackers might sabotage your infrastructure or financial authorities might freeze your account or even worse, deem your instrument as unlicensed. 

When issuing a token you want a partner on your side that is also looking beyond the technical process. In reality, a lot of steps and expertise are needed to tokenize an asset:

• You need to make sure that you have a legally airtight setup
• You need regulatory approvals
• You need the technical realization of the token
• You need to spread the word so that people are interested in what you have to offer

Be aware that the process includes many steps that might not seem important at the start but will make or break your project in the end.

4. Transact safely: when you trade or invest in assets you want a trustworthy partner to escrow your deal.

It doesn’t matter if you buy software or an IP license from a company or trade assets over-the-counter (OTC), you always want a trusted third-party to safeguard the transaction by providing escrow. In some industries, such as banking and insurance, companies are legally obligated to put business-critical software into escrow. In all other cases, it is just common sense to store intellectual property and licenses thereof in escrow.

Apart from storing your or your suppliers IPRs physically in high-security vaults, you can also opt to store the data in a blockchain-controlled storage cluster which controls access through smart contracts. These smart contracts enable automating a data release to a specific beneficiary based on predefined events, such as insolvency, a change in terms and conditions or acquisition of the licensing company.

Some of the world’s leading technology providers work with us and deposit their software source-code when signing license agreements with their clients. In case any of the contractually agreed-upon terms changes or predefined events, such as bankruptcy, occur, the source code is automatically released to the licensee. Licensees thereby ensure their business continuity in case unforeseen events require them to operate the system without the support of the licensor. This process was originally handled through sending around DVDs or USB-sticks and storing the media in secured vaults and is now possible in a digital and automated fashion through blockchain-powered access control lists and automated release mechanisms.

5. Tell people about it: talk about your blockchain experience and educate others. 

Even though everyone has heard the term blockchain by now in some context, it does not mean that everyone understands the concept or is aware of the possibilities. 

No matter if you have restructured your IT systems using a blockchain, issued a token to finance a project or just optimized existing business functions and processes with distributed ledger technology - you will want to educate the people around you. 

Investors are especially keen on the opportunities tokenization offers them, however, if active cases are not actively promoted, it will be another decade before the tech behind it goes mainstream. For people to trust blockchain technology, it is mandatory to spread the word. 

When it comes to speaking about your internal systems or the way you technically implemented a blockchain solution, you should not be shy and speak up.

Beyond the Blockchain Market Hype

In the past, only speaking about blockchain often led to absurd situations where a company’s stock price skyrocketed only because they put «blockchain» in their name: what is in a name, right? At least we at Blockzeug did not produce ice tea before we started in the blockchain sphere and so we had no „Long Island Blockchain Corp.“ hopes to boost our market value when we founded «Blockzeug». Still, the name counts a great deal for sure.

So, talk to your audience, ideally with experienced marketing and public relation pros. If you do not have a communications team yet, make sure you find the right partners for your project and spread the word! 

In a nutshell: blockchain technology opens up entirely new opportunities across industries to optimize and even rethink payment systems and cross-border transactions (Corda/Ripple), supply chains (O2C&/P2P), identity solutions (IAM/DID/KYC/AML), storage, filesharing and archiving (IPFS), and asset tokenization (TokenD). The latter applies to both tangible and intangible assets, such as real estate or revenue participation notes.

We want to work with all the confident companies out there that are willing to go deep-dive into blockchain. Start small, re-iterate and scale. Be bold in your approach to blockchain and the solutions you envision for your company in the future. Be a blockchain lion, don't be a sheep that follows the herd.

If you are looking for additional info, stay tuned, I will post more articles in the upcoming weeks. Leave a comment, if you want to see specific topics covered!

ABOUT BLOCKZEUG:

Our clients at Blockzeug access an enterprise suite of IT products, services and solutions - both blockchain and non-blockchain. We deliver turn-key projects, provide technical assistance and maintenance. We help to build the future of asset tokenization for global brands as well as SMEs.

If you want us to support you with your project, support in larger OTC transactions, structure and manage a regulatory approved security token offering or just want to get more insights about blockchain, say hello at hello@blockzeug.com, schedule a meeting, meet us at one of our offices in Berlin, Munich or Heilbronn or just find out more on blockzeug.com