4 business approaches to blockchain

Web3 – a vision for the internet rooted in decentralization and transparency and built on technologies such as blockchain and AI – is a new frontier for innovation and market disruption. Yet most companies do not fully assess the potential use cases for Web3 or have a clear idea of ​​how to get started.

In a 2022 survey by the MIT Center for Information Systems Research, only 13% of executives characterized their companies as very effective at deploying basic Web3 technologies such as blockchain, while another 36% said they were only somewhat or not at all effective to the. This shortfall can have long-term consequences for companies’ fiscal health: the research also found a link between growth and profitability and the successful rollout of technologies such as blockchain.

Succeeding with Web3 depends on creating value with blockchain and managing the complexity of decentralized governance, according to a new research briefing by MIT CISR researchers Gayan Benedict, Ina Sebastian and Stephanie Woerner.

The benefits of decentralization

Web3 provides the means to decentralize information, data infrastructure, and governance of Internet-based systems across an ecosystem of distributed participants. “It gives ownership back to users and creators in a way that is not addressed well with today’s Internet models,” Benedict said.

Web3’s community-centric ethos lends itself to solving a different class of problems. “These are problems that are not conventionally solved by any one organization and typically span multiple parties or even industries,” said Benedict, former CIO of the Reserve Bank of Australia who is currently researching decentralized Web3 governance as a Fulbright Scholar. “Problems that are inherently decentralized or distributed are best solved with Web3, as it uses distributed technology and incentives to coordinate participants to solve problems that centralized solutions have been unable to solve.”

For example, in the financial industry, blockchain can be leveraged to reduce transaction fees and lower barriers to entry by widely distributing infrastructure and operating costs. It can also enable data sharing in ways that maintain privacy while allowing industry-wide issues, such as insurance fraud, to be managed across organizations.

Four approaches to adopting blockchain

Some early adopters of blockchain technologies have experienced high-profile failures over the past 18 months, particularly in cryptocurrency and early enterprise blockchain deployments. These early entrants experienced both financial losses and reputational damage among investors and stakeholders.

In their research briefing, Benedict and his fellow CISR researchers outline four approaches to blockchain adoption that companies are taking as they weigh the value and risk of early participation. Companies should choose one of these approaches based on their appetite for risk, regulatory acceptance and competitive scenario, as well as the digital knowledge of key executives.

1. Wait and see. This approach is suitable for companies in highly regulated industries that are risk-averse. These companies are often content to leave early experimentation to others until there is greater clarity around profitability, regulations and other market forces. One example is the Commonwealth Bank of Australia, which announced it began managing cryptocurrency in its mobile banking app only to pump the brakes when market volatility and customer feedback gave it reason to pause. The upside to an early wait-and-see attitude is to learn from the experiences of others and let regulators catch up. The downside is the potential to miss out on key talent, organizational experience and other fundamental capabilities when Web3 skills become necessary for market success.

2. Experiment. An exploratory path enables companies to try out blockchain-based products and services on a small scale without risking mission-critical operations. Companies use these projects to learn, develop strategic partnerships, hone employee skills, and explore market acceptance of the new offerings without making changes to existing products, service offerings, or technology architectures. In the insurance industry, for example, pilot projects have attempted to track motor vehicle repair claims across multiple insurers to minimize the practice of submitting multiple claims for the same accident. A blockchain-based approach is expected to solve the industry-wide problem without the need for an expensive centrally managed technology platform or requiring insurers to open their books to competitors.

3. Provide targeted offers. This approach goes beyond experimentation to extend blockchain into targeted areas—typically those that are not mission-critical or where regulatory requirements require careful navigation. Mastercard took this path to provide payment services for the non-fungible token market, but instead of going all out and using cryptocurrencies, the company partnered with NFT marketplaces to support Mastercard-enabled payments. This helped the company manage regulatory requirements while meeting customer requirements and building institutional Web3 knowledge.

4. Go all in. This is the preferred route for startups or industry disruptors committed to building new businesses based on decentralized blockchain-enabled products and services. These companies, such as Denmark’s ZTLment, are unencumbered by legacy practices and infrastructure, and aim to introduce decentralized Web3 offerings in markets dominated by conventional centralized businesses, such as payment service providers.

Best practices for moving forward

Most traditional companies will begin with experimentation as they build necessary Web3 skills and gain clarity on market forces. At that point, they will upgrade to targeted solutions where they can capture value. Benedict recommends that they keep the following things in mind as they move along the course:

• Be careful to identify the right problems that you hope to solve. Web3 is not a solution to every business problem and is best suited to problems shared by multiple parties who are motivated to come together to develop a collective solution.

• Don’t just focus on technology. There are far more complex dimensions to a Web3 solution, especially around new decentralized management and shared incentive models. It is important to understand the skills gaps beyond technological challenges and create a plan to fill them, said Benedict.

• Embrace an ecosystem mindset. Companies must go beyond thinking about traditional competitors or long-standing organizational conventions. “You have to think beyond your organizational and system boundaries,” Benedict said. “You have to think in terms of ecosystem problems, which have not been solved well with our current centralized solutions. There are a number of challenges and opportunities out there that have been too difficult to solve until now.”

Read the research briefing: Creating value from Web3

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