The one secret about Blockchain that companies aren’t talking about

Guest post by Adrian Daluz, see his medium blog here.

I’ve been contracting to a blockchain company, ClearPoll, for the last 14 months. It’s been a wild ride. Watching as a whole new space opened up in the tech industry and we were all excited to ride that wave, and then seeing the space disintegrate around us as people lost a stupid amount of money with hype investments. Yet, despite all that, I remain bullish on blockchain technology. Not because of overhyped, “We are making the world a better place” promises, but because of real tangible benefits that it provides to businesses.

Infrastructure costs

The bane of tech companies, infrastructure costs make up the majority of operational expense for any company in the tech space. Paying for servers, databases and the like burn through the bank fast. For example, Netflix is estimated to spend around $40 million USD on cloud services per year. For a much smaller company, who doesn’t deliver video, the cost is obviously much lower but it’s still a large chunk of your yearly budget. It’s money you can eliminate, in part, by moving to a blockchain backend for your service.

If your company can start storing and delivering content via a blockchain, you can push the cost of running your infrastructure from yourself to the customers accessing that data. Let’s continue using ClearPoll as an example, a polling application on the blockchain.

If ClearPoll were a traditional voting app, you would open the application and request a list of polls. The application would send that to the ClearPoll backend, which would then ask the database for the list of polls. The backend then sends this back through to the mobile application to be presented to you.

Using this model ClearPoll pays for the server storing the poll and the bandwidth to deliver that poll to you.

Now let’s look at a simple blockchain use for ClearPoll, this is a simplified view but it gets the point across. You open the ClearPoll application and request a list of polls. The application connects to a public node on the blockchain, queries the chain and gets the polls that are active. These are then sent back to the mobile application.

In the blockchain method, what are ClearPoll paying for? They don’t run the nodes, they don’t host the chain and they don’t control the connections to the node. Those are all users.

Public users run the nodes on their local networks, which means they all store a copy of the poll on their local hardware and serve it up via their local connection.

ClearPoll doesn’t have to pay for anything, infrastructure-wise, in this scenario.

There is a downside to this and that is the issue of how to pay nodes. Nodes will only run if they are being paid to do so, no one’s going to mine data in and out of a company’s chain without being compensated. It’s just not feasible when the difficulty is high and electricity costs rack up. So how would a company manage this?

Tokens are free money

They create a token. For many companies that popped up during the ICO craze, tokens were literal free money. You create a token, hype it up and suddenly you can off-load it for real dollars. You’ve created a currency on speculation and hype that you can convert for real fiat money. So, you use this to pay the node rewards.

Let’s keep using ClearPoll, they created the ClearPoll token or POLL for short. In order to pay out rewards they just need to have enough POLL to distribute and a way to recoup POLL for future payouts. If they built a self-sustaining token economy, they could feasibly pay out node rewards consistently, month-to-month with their created token and never dip into their actual business funds.

There are some counter arguments, for example, by not selling the POLL that they recoup they are losing out on potential revenue. It all comes down to token economics, but since this is a fake example it’s not crucial to the point at hand. They create fake money, and use that fake money to pay the users running their infrastructure. It’s really a win-win.

Is it a bad thing for users?

Whether or not it’s a bad thing for you individually comes down to you. You’re running the backend for a large company, but you’re not doing it for free. You are getting paid, but you’re getting paid in a crypto token. That’s both a bad thing and a good thing depending on the market for that particular coin.

The important thing is that it would drive up mass adoption for blockchain in general.

If companies such as Netflix, Amazon and Google were to jump on the bandwagon and create functional large scale blockchains, the entire space would benefit.

There are current drawbacks to this model that do provide a negative to users, such as the slowness of blockchains to store and deliver instantaneous data. As it stands, if someone like Netflix was to use a public blockchain, the user experience of their application would plummet greatly. That’s a timing issue, something that would be addressed if they decided to take the plunge.

So why is nobody talking about it?

They are, just not publicly. It’s a discussion I’ve had with many people across multiple blockchain projects, because it’s a huge benefit that leaps out to everyone that has paid enormous AWS bills in the past. However talking about it publicly is almost a sin, it’s admitting that you’re doing something not to “benefit mankind” but rather to save on your bottom line.

It means a shift in how you perceive the success of blockchain, because mass adoption does rely on large scale applications that appeal to a majority.

Until the blockchain community is willing to stop saying, “Why is this on the blockchain?” and instead ask, “Why isn’t this on the blockchain?” this massive leap forward cannot happen. Right now, companies are attempting to pander to the hype market that we’ve all built, trying to generate revenue on a nothing product.

We need to push them instead to deliver tangible scale products and decreasing your annual costs is great motivation.

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