Blockchain Makes for a Risky Business Case

| FinReg

By Larry Tabb, Tabb Group 

Originally published on Tabb Forum 

The first-mover advantage offered by traditional solutions doesn’t apply to blockchain and distributed ledger technology. In fact, blockchain has a first-mover disadvantage. So how do we drive blockchain adoption and realize its full potential? 

Blockchain/distributed ledgers have the power to radically shift the economics on Wall Street. But the power of the blockchain comes from ubiquity and scale. So what does that mean for blockchain adoption?

Traditional solutions are implemented when a firm sees an opportunity. That opportunity either needs to generate a return, or limit the firm’s downside. The first mover accepts greater investment and execution risk for the opportunity of competitive differentiation and the profits projected therein. Next come the fast followers, who leave the first-mover profits on the table for the opportunity to reduce implementation risk. Finally, the laggards invest so they don’t become competitively disadvantaged.

Blockchain/distributed ledger technology, however, doesn’t fit into this paradigm. Investments such as blockchain do not come with first-mover advantage; it is the opposite – they have first-mover disadvantage. The first mover makes the investment; however, if no one follows, that investment can be a total write-off. In fact, by not investing, the first mover’s competitors can actually precipitate the first mover’s failure.

This makes for a very risky business case.

For blockchain technologies to be successfully adopted, one or more of three scenarios must occur: First, investment must be made mutually by some sort of consortium, utility, or external third party with connected and very deep pockets. Second, an outside vendor must bankroll the investment. Or third, solutions must be co-opted from something that already exists.

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