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Building an International Business Model on Blockchain

April 23, 2018
Digital room with padlock and word blockchain in 3d illustration
Global blockchain technology market is expected to reach $12.48 billion in 2025. (Photo credit): Westend61

Blockchain is the buzzword of the year, but how do you build a viable business on it?

Blockchain—and cryptocurrency—have been in the news almost daily since the end of 2017, when bitcoin started soaring to unimaginable heights. It has its fans and its detractors, but there is no denying that it’s generating a lot of interest, even beyond the financial industry. It’s become such a buzzword that companies were even changing their names and business models to capitalize on the blockchain hype. The blockchain technology market is expected to reach $12.48 billion in 2025, and demand is expected to grow as the technology advances. But how do you utilize blockchain technology to actually build a viable business or improve an existing one?

Understanding what blockchain is

Blockchain is a decentralized ledger network. Every time a transaction is completed, it forms a “block,” and each new transaction is connected to the previous block to form a “chain”—hence the term “blockchain.”

The appeal of blockchain lies in its transparency and security. The blocks are chronological and immutable, meaning that every transaction is traceable and cannot be altered. Because it is decentralized (meaning it’s not controlled by a single main authority but rather by the users), blockchain also cuts out the middleman when it comes to finance, by eliminating the need for a third party (i.e. banks or governments) to process and/or store payments.

The increased security and efficiency makes it a great tool for almost any business, but especially for those that deal in international transactions. “Bitcoin and other cryptocurrencies have been the preferred method of payment for employees, contractors, and vendors outside of the U.S. because it creates less friction than the traditional financial system,” says Shawn Wilkinson, CEO of Storj, a blockchain-based cloud storage company. Whether it’s for tracking the supply chain of products across international borders, or Storj’s global decentralized storage, blockchain can cut down on the hassle, worries, and mistakes involved in doing business overseas.

Blockchain technology statistics and facts infographic
Blockchain technology statistics and facts

Identifying areas that blockchain can improve

Although developed for financial records (it was created as an accounting tool for bitcoin), blockchains can technically store any kind of data. French retailer Carrefour is using blockchain technology to track the supply chain of its food products, Storj is using it to facilitate a decentralized cloud storage network, and California-based ObEN is using it to develop its own artificial intelligence ecosystem. Blockchain can be applied to almost anything; it’s just a matter of understanding the areas of application, says Wilkinson.

“I would start with what blockchain enables you to do that a traditional system would never allow you to do,” he suggests. “For us, it’s payments. We allow users to rent out their extra hard drive space on their computer to our network. No traditional payment system would allow us to make global payments to 100,000 nodes (the computers connected to the blockchain network) instantly with the click of a button, but blockchain allows us to do that effortlessly.”

Blockchain also enables collaboration between different businesses, says Michael Yuan, co-founder and chief scientist at the CyberMiles Foundation, which aims to build a decentralized e-commerce network using blockchain. For example, Yuan says to consider the transfer of medical records and insurance information between a hospital and insurance company. “It used to be that people couldn’t trust each other,” he says. “They would do all kinds of things to modify the record to get paid—this provides a way to assure both parties that it’s not being modified, and both parties can access the network and look at the records.”

Storj: Decentralizing Cloud Storage from Storj on Vimeo

Cryptocurrencies as drivers of adoption

However, at its heart, blockchain is just a high-tech ledger system, albeit one that can drastically streamline and secure all transactions. According to Yuan, the real value of blockchain technology lies in its ability to facilitate digital currencies like bitcoin, which can allow businesses to entice users and compete better against established industry players.

“What we started to realize is that maybe cryptocurrency is an integral part of blockchain technology, perhaps even more important than blockchain technology itself, because it facilitates a new type of economic system,” he explains. Developing digital tokens allows businesses to both raise money through initial coin offerings (although some countries like China have banned ICOs) and incentivize people to join and use their platform, says Yuan. ICOs (which Investopedia describes as a cross between traditional IPOs and crowdfunding) allow companies to raise capital without having to go through traditional means.

“[ICOs] solve one of the biggest problems of network-building, which is the cold start—how do you dump money into a network to cold start it?” says Yuan. “We’ve all seen how Uber did it. [They] raised a tremendous amount of money and paid all those [people] money to be on their network…but competitors don’t have tens of millions of dollars to pour into the market to jumpstart it.”

Digital currencies also provide potential users with incentives to actually use a service or platform that people wouldn’t normally consider. In ObEN’s case, cofounder and chief operating officer Adam Zheng sees virtual currencies as the perfect incentive to get users to participate, since their AI ecosystem is reliant on user-contributed data.

“AI needs a lot of data—but why would I contribute data?” posits Zheng. “I don’t. But one of the benefits or features of blockchain is that if you contribute data, you will be rewarded with virtual currency because you contributed to the entire community. The kind of application we’re building, as long as people are using our application, contributing data, they will be rewarded with virtual currency, and they can use it to enjoy different kinds of experiences in the ecosystem. It’s a new way to encourage people to contribute more data, which previously they wouldn’t.”

Michael Yuan, co-founder and chief scientist at the CyberMiles Foundation
Michael Yuan, co-founder and chief scientist at the CyberMiles Foundation
"What we started to realize is that maybe cryptocurrency is an integral part of blockchain technology, perhaps even more important than blockchain technology itself."

- Michael Yuan

Optimize blockchains and tokens for a specific purpose

CyberMiles’ mission is to democratize and decentralize e-commerce by creating a collaborative network of buyers and sellers, without going through large players like Walmart and Amazon, that charge big fees. In order to do so, it developed its own blockchain network to manage common problems in peer-to-peer trading and e-commerce transactions, and to help multiple users reach agreements through the use of what the company calls smart business contracts. CyberMiles also developed its own digital currency, CyberMiles Token, to provide an efficient in-work settlement currency to reduce transaction costs.

“You cannot have a blockchain that’s one-size-fits-all,” Yuan emphasizes. He uses bitcoin as an example of a misused digital currency. Because of bitcoin’s relatively slow transaction speed and high fees, Yuan says bitcoin failed as a payments token, but its value actually lies in its inability to be traded efficiently. “Look at bitcoin as gold,” he says. “The actual gold bars were never moved and traded—what’s traded is the derivative on top of that. That’s what I think bitcoin is going to be in the long-term future—it’s going to be the digital gold. Using bitcoin to buy stuff will be analogous to using a gold bar to buy coffee. Yes, it can do that, but that’s not what it’s designed to do.”

Hence, why CyberMiles chose to develop its own token instead of adopt an existing one that may not be the perfect fit. “We want to build a blockchain that’s heavily optimized for e-commerce, from the contracts, to the interactions, to the stable currencies that e-commerce will require,” says Yuan. “You can’t have a currency that fluctuates wildly from day to day, because then you’ll never know what the prices of things are.”

The limits of blockchain

Blockchain is not without its faults. Although it is touted as a secure technology, the system isn’t always the most efficient, since every single node (computers/users that are a part of the blockchain network) must process every transaction.

That presents a major roadblock to scalability, says Wilkinson. Although blockchain has become more mainstream, the networks aren’t large enough to fully support its capabilities on a broad scale. “Look at credit card transactions,” he says. “On average, Visa processes 150 million transactions per day. Bitcoin has only processed a maximum of 400,000 transactions per day, while Ethereum has processed a maximum of 1.3 million transactions per day.”

However, Wilkinson has high hopes for the technology; it might just take some patience to see its fruition. “Blockchain will definitely impact the ways companies work together across international borders, but that may not be for another few years,” he believes. “Once these, or other technologies, are able to handle the scale necessary to meet the demands and use of consumers, it’s inevitable that they will disrupt traditional payment businesses.”

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