By Wayne Vaughan,
Vaughan is the CEO of Tierion, a proof engine that lets you prove the integrity of any data, file, or business process. He is the co-author of Chainpoint, a standard for linking data to the blockchain.
2016 saw the rise of the blockchain evangelist.
Not since the heady dotcom days have we seen so many experts hyping a new technology. But, amid the hype, little attention has been paid to an important question. Who pays for the blockchain?
This consideration is especially important to anyone evaluating blockchain technology for their organization.
The blockchain buzz began in 2015. Bitcoin’s association with illegal activities earned it a bad reputation. This led startups to brand themselves as blockchain companies. They promised to deliver the benefits of the “technology behind bitcoin” without the undesirable baggage. Most didn’t understand that the technology behind bitcoin has existed for years.
Bitcoin’s success is a result of the network’s economic incentives.
This fundamental misunderstanding has led to much confusion and misinformation, including the popular notion that blockchain is a new type of distributed database where information persists forever and cannot be changed.
Data can’t live forever if no one pays the bills. Before you blockchain your business, let’s examine who pays for three popular blockchain platforms.
Bitcoin
Bitcoin is primarily used to route and store value.
Bitcoin works because miners earn money for running the network infrastructure. Remove this incentive and everything falls apart.
Most bitcoin developers own bitcoin, and thus have a stake in the network’s success. Over $1bn in venture capital has been invested in bitcoin companies to date, which subsidizes platform development.
Most importantly, a complex circular economy has evolved over the past eight years that involves thousands of businesses all over the globe.
While some of bitcoin’s $15bn market cap remains driven by speculation, much of it now comes from the people and businesses using bitcoin. Each of these participants bears a share of the cost of securing the bitcoin network.
Ethereum
Ethereum is a blockchain mainframe.
The network behaves as single computer. Anyone can rent, compute and store data on ethereum by paying for it in its native token, ether. Miners that maintain the network infrastructure are rewarded in ether, which can be exchanged for bitcoin and ultimately converted to fiat currency.
As with bitcoin, many ethereum developers own ether and have an interest in evangelizing the technology. Ethereum startups have received little funding from professional VCs relative to bitcoin startups.
Instead, the ethereum ecosystem has relied on speculation of the ether token and crowdfunding to finance projects.
So far, no circular economy has evolved around ethereum, but that’s to be expected since the network is just over one year old.
Ethereum’s long-term growth is dependent on developing an ecosystem where companies consume ether at a rate that exceeds the cost of running the network.
Hyperledger
I think of Hyperledger as a new brand of enterprise software platform that shares design characteristics with bitcoin.
Its development is guided by group of companies that includes IBM, Intel and Airbus. The Hyperledger network infrastructure is paid for by customers in a traditional enterprise software licensing model.
The costs of running Hyperledger are likely similar to the costs of running a cloud application.
No surprises here.
Look both ways
There’s a lot to consider before buying a blockchain.
Developers with blockchain expertise are rare and developer tools are immature. These factors increase security risks and make the cost of developing with blockchain higher than more mature technology stacks.
Smart companies clearly define the problem they’re trying to solve before approaching blockchain vendors. When you do talk to vendors, you’ll likely be faced with unfamiliar jargon and grandiose promises.
Be sure to evaluate non-blockchain solutions. Ask if blockchain technology can enhance your existing technology stack.
And don’t forget to ask “Who pays for the blockchain?” Is it supported by a stable ecosystem and ready for mission critical applications? A clear understanding of the incentives and economy behind the blockchain can save you a lot of trouble.