Late last year, I had the opportunity to discuss blockchain and crypto assets with Dr. Shin'ichiro Matsuo, head of blockchain research in the Cryptography & Information Security (CIS) Lab at NTT Research. In 1996, Dr. Matsuo implemented an E-Cash system based on theories developed by NTT Fellow and CIS Lab Director, Dr. Tatsuaki Okamoto. This work convinced Dr. Matsuo that the key to using blockchain for business lies in blockchain's shared ledger technology's ability to instill trust into e-commerce by providing consensus-based verified business data. That concept was so impressive that I welcomed the opportunity to continue the conversation with Dr. Go Yamamoto, a senior scientist in the NTT Research Cryptography & Information Security (CIS) Lab.
Since joining NTT in 2002 as a member of the blockchain research group, Dr. Yamamoto has focused on establishing and maintaining "trust" across digital infrastructures. The required components for establishing trust consistency are dependability, accessibility, and ubiquity. Since cloud service providers deliver a significant percentage of digital business infrastructure services, CSPs are central to the business trust model.
According to Dr. Yamamoto, the CSP's essential infrastructure role fundamentally changes the nature of all digital business ecosystems. This change is due to cloud-based IT infrastructure services' economic advantages, which essentially forces many business model owners to adopt the cloud computing model to deliver an economically viable product or service. The adoption of cloud services means that the business model owner no longer retains control of many vital elements of the business model, including:
- Customer relationship management;
- Supply chain management;
- Emergency response; and
Handing these essential elements to the provider also gives the hyperscale CSPs control of global commerce through their ability to control the global IT infrastructure. This evolution establishes trust between business model owners and cloud service providers essential to a successful digital transformation. Therefore, using blockchain to develop digital ecosystem trust can be beneficial to every business.
Digital Business Ecosystems
Before going further, it's essential to appreciate the role that ecosystems play in modern business. Research by the BCG Henderson Institute found that in annual reports, the term "ecosystem" occurs 13 times more frequently now than it did a decade ago. The success of iconic examples such as Google, Apple, Facebook, and Amazon fueled this increase.
A "business ecosystem" is a dynamic group of largely independent economic players that create products or services that together constitute a coherent solution. There are two types, solution and transaction, and both represent governance models for organizing members to realize a specific value proposition.
Key business ecosystem characteristics include:
- Modular components that operate independently yet function as an integrated whole;
- Independent components are customized to the ecosystem and made mutually compatible;
- Relationships are multilateral, meaning they are not decomposable to an aggregation of bilateral interactions; and
- Business ecosystems are not fully hierarchically controlled but encompass a coordination mechanism. Coordination is significant to digital ecosystems because application programming interfaces (APIs) regulate access and interaction.
Digital business ecosystems broadly leverage APIs to increase the speed, reach, convenience, efficiency, and scalability of the ecosystem members and are thus an essential driver of ecosystems' current growth in general.
Sustainable ecosystems also tend to mature by going through three distinct phases.
1. Successfully seize the opportunity with ecosystem partners by simultaneously capitalizing on a marketplace network effect:
2. Evolve their business model by expanding the scope of the platform and increasing engagement with platform participants; and finally
3. Sustain long-term success through effective leadership capable of managing vested interests among partners and other stakeholders, including regulators and customers.
Successfully navigating these three gates requires establishing trust among all ecosystem members.
Building Trust With Blockchain
Cloud service providers connect customers to digital products and components of those products to each other almost exclusively through APIs. The service delivered by each CSP is unique to that platform. These services are not commodities because they aren't interchangeable between different cloud service provider platforms. The business model owner cannot assume that any cloud service is consistent with any industry-standard since none exists. There is no industry-wide mechanism for establishing such a standard.
This lack of cloud service standards gives the cloud computing platform owner unassailable bargaining power across all digital business ecosystems. This ecosystem model is not sustainable for global digital commerce over the long term because those cloud service platforms (and their APIs) will become dominant. By tying any business model innovation to a specific cloud service implementation and its API, all business model innovation is suffocated.
Suffocation can be prevented by making cloud services a true commodity. Blockchain can enable this by using a concept Dr. Yamamoto refers to as a Common State Layer. This layer is an autonomous, public consensus mechanism used to ensure services are replaceable between different domains. For this digital business ecosystem scenario, the layer implements a standard cloud-based infrastructure between the Business Model Owner (Domain 1) and the Cloud Service Provider (Domain 2), and the Business Owner can propagate the bargaining power to the platform because the Service Provider is replaceable. Blockchain across the public internet can implement this consensus layer. The layer would also provide the needed components of trust in that;
- Dependability of the standard service is assured since the services wouldn't be unique to a specific CSP
- Service accessibility would be guaranteed in that the business owner could access the standard service from any other CSP; and
- Service would be ubiquitous because it would be provided across the public internet.
While the "common state layer" seems futuristic, cryptocurrencies prove the concept's viability. In that domain, national governments provide fiat currencies like Euros, British Pounds, and US Dollars. Blockchain-based networks represent the autonomous, public consensus mechanism, or state layer, that uses crypto-assets to provide a financial digital services infrastructure.
However, using blockchain to extend this model to global commerce would require multiple public consensus layers across various business domains.
Implementation would also require the development of a "starter kit" for public local blockchain business systems that:
- Anyone can join/part (like the internet)
- Exhibits controllable scale (unlike Bitcoin)
- That anyone can start for any desire specific purpose; and
- That can collaborate with other systems.
Dr. Yamamoto is currently researching current blockchain systems. His analysis will help design a useable protocol for a future business Common State Layer.
This work is just another example of the importance of basic research to the advancement of global business. I look forward to the day when blockchain independently verifies trust between businesses everywhere.