A Blockchain Business Diagnostic Model
Roop Singh , Dr. Nishant Dass, Dr. Al Tilooby, Justin Breen
Why read this report
Using a 32-point criteria for evaluating blockchain companies, this summary report presents a diagnostic model to assess their success as well as challenges holistically. It identifies 25 companies which we researched, analyzed, and scored, to exemplify how the model works. Identified industry trends and company performance metrics will enable blockchain practitioners to make the right decisions.
Key industry trends:
How to use the model
As a business practitioner, this model allows you to discern the strengths and weaknesses of your company or project. You will be able to understand the state of your business and navigate your future growth. The model enables you to perform an initial assessment to set up a benchmark and score your business every quarter to ensure on-track progress. Plotting all the dimensions on a radar chart gives a quick visual sense of your project’s competencies and desired areas of improvement.
Consider three scenarios:
1- Company A: Two young highly technical entrepreneurs set forth to develop a better protocol, to monitor critical assets in a complex supply chain.
2- Company B: A group of seasoned industry veterans with years of domain knowledge in nuances of healthcare industry, set forth to disrupt the space with a new blockchain platform. Vision is to bring the ecosystem onto this new platform.
3- Company C: A large fortune 500 energy company spun off a startup venture to innovate past current competition and new entrants. It envisions to create an exchange to trade carbon credits as tokens.
The model when used with prescriptive expert analysis, recommendations and an action plan provides a strategy to build a successful blockchain business. It also points to costly risks and pitfalls in a rapidly evolving space.
As an investor, you come across countless pitches and new plays in this dynamic space. After awhile, they all start to look the same. This model can help you evaluate blockchain/crypto-based companies and understand their relative strengths, areas of improvement, and overall potential.
Blockchain business evaluation overview
According to Satis Research, only about 15 % blockchain businesses and their related ICOs have successful. We set out to find out why. We found blockchain-based companies are unique because the fundamental nature of blockchain technology gave rise to a distinct and different cultural, social, and institutional ecosystem as compared to other technology-led evolutions in the past. Turning Blockchain technology into a viable business has raised a number of fundamental questions, answers to which are still being explored.
While a lot has been said about the potential of the blockchain, it’s only now that its transformative prowess to alter verticals, create new markets, revamp business models, build stronger collaborations, introduce novel governance schemes, and shift boundaries of firms is starting to emerge.
A superior technology alone does not ensure a successful business. Adopted technology does.
There is a dearth of prescriptive assessment models that address the peculiarity of blockchain-based businesses. As Gartner points out in its Top 10 Strategic Technology Trends for 2018 report: “Recognize that the terminology surrounding blockchain is in flux. This uncertainty masks the potential suitability of technology solutions to meet business use cases”
The same Gartner report also identifies a major challenge –“Blockchain faces other key challenges that will undermine the delivery of robust scalable solutions through 2022. Blockchain technologies and concepts are immature, poorly understood, and unproven in mission-critical, at-scale business operations.”
We offer a diagnostic model, including a pyramid hierarchy—a quick reference taxonomy to categorize types of blockchain-enabled solutions—using a 32-criteria evaluation to assist practitioners in assessing blockchain-based companies across three dimensions.
The Model
The Dimensions
Intuit Factory’s model has three primary dimensions, three secondary dimensions, and six dimension multipliers. None of these dimensions are correlated to each other. Assessment is based on qualitative analysis of the internal, external, and interfacial factors affecting each business along these dimensions. A company score could range between a minimum of 50 points and a maximum of 1000 points. The three primary dimensions are:
Solution Design Versatility — Vertical axis
Market Potential — indicated by the size of the bubble on the plot
Execution — Horizontal axis
Figure 1
1. Solution Design Versatility
The ‘solution design versatility’ dimension, plotted along the vertical axis of Figure 1, accounts for both – the nature of the problem the business is trying to solve and the way it chooses to solve it. This dimension, using 4-point criteria, evaluates a company’s strategic choices: Is the underlying solution a development platform, as exemplified by Ethereum and Steemit? Does it have its own blockchain protocol, as in Cardano? Is access to the blockchain permissioned or permissionless? Does it create an end-to-end asset marketplace? Does the solution offer use cases other than a pure-play cryptocurrency? This dimension also considers the uniqueness of a solution in comparison to existing and emerging alternatives. It takes into account factors like robustness, architecture choices, technical characteristics, scalability, reliability, and latency.
The Pyramid
Figure 2
To evaluate companies on their solution design versatility, we introduce a new taxonomy and hierarchy for classifying blockchain solutions. The Pyramid, shown above in Figure 2, categorizes companies across five discrete bands along the vertical axis, based on solution design versatility. The higher categories are allocated more points on the ‘solution design versatility’ dimension than the lower categories, thus forming a pyramid. Companies in one category should only be compared to other companies within the same category. The location of the company’s market potential bubble within the same category reflects the relative superiority of its solution design.
On the top end of the spectrum are platforms while centralized applications form the base of the pyramid on the other end of the spectrum. The other categories in between these polar extremes complete the hierarchy. As we categorize the companies in a specific band based on their solution choices, the pyramid is not progressive. We don’t prescribe companies in lower bands to improve and get to higher bands — it is not a sign of progress. A successful business can be accomplished regardless of the band in which the company is categorized.
Intuit Factory pyramid describes the five distinct categories and defines them as follows:
A platform typically has a distributed ledger and a protocol as its underlying layer. Given that platforms are more complex to build and offer higher solution design versatility. We classify such companies as Ethereum, Steemit, and Stellar within this highest category.
Protocols:
“A ledger with rule-based collaboration, encryption, consensus mechanism, and governance architecture to enable node-to-node transactions over a distributed network. It may or may not include a native asset. The network may be public, private, permission-based or permissionless.”
Marketplace:
“An online solution for users to discover and exchange cryptographically secured digital assets.”
API-as-a-Service:
“Solutions that offer on-demand services to allow third-party applications to exchange data and messages between distributed ledger(s).”
Crypto-asset Exchange:
“Solution to allows users to exchange one tokenized crypto asset or fiat currency with another tokenized crypto asset.”
These are solutions that neither offer a platform nor have their own protocols. Tenex (API-as-a-Service) and Bianance (Crypto-asset Exchange) are examples of companies in this category.
Pure-play Cryptocurrency:
“A cryptographically-secure token which is a:
Unit of account
Medium of exchange
Measure of value
Store of value
It allows users to exchange value for the purpose of payment over its own distribution network. Not used for any other purpose. ”
Examples of pure-play cryptocurrencies in the fourth band are Dash and Bitcoin Cash, which are forks of existing protocols but developed their own network for use as crypto-currencies.
Centralized Applications:
“Applications that use centralized storage, are built on a centralized network architecture, and are owned and controlled by a central authority.”
In the sample of companies considered, none were found to be in this category.
2. Market Potential
The second dimension that we evaluate each business on is its market potential. Graphically, it is represented by the size of the bubble on the plot shown in Figure 1—the larger the size of the bubble, the larger our score of the company on the market potential dimension.
This dimension, using 4-point criteria, evaluates factors like the size of the potential addressable market, gauges the potential for adoption of the blockchain-based solution by the customers, and assesses the possibility of favorable network-effects in the ecosystem. The dimension also considers the relative market competition.
While the company chooses the market sector it operates in, the potential size of the market is a function of internal choices and external factors. Specifically, the potential market size that the company can capture depends on its own strategic and operational choices as well as on how competitors act or react. The strategic choices include operational business decisions, marketing, financial investments, hiring talent, etc. So, overall, the company’s score on the Market Potential dimension—reflected in the size of the bubble in Figure 4—is a function of both factors external to the company as well as those that are controlled by it.
3. Execution
The third and last dimension is further divided into 3 secondary dimensions (not shown in the Figures). Using 24-point criteria, it evaluates the companies on the execution of their stated strategy and vision. The company’s execution is represented on a continuum of Weak to Strong, as shown along the horizontal axis in Figure 3.
We assess the quality of the founding team behind the project as well as the diversity of the overall business team, external advisors, and investors. We then evaluate the business preparedness for regulatory risk, which is especially important in this sector. Policymakers are still learning how to accommodate for blockchain innovations pursuant to the current law or to create new legal frameworks. A global multi-tiered legal landscape adds to the complexity.
What is the nature of regulatory risks that the company may face, given its specific business model? The nature of regulatory risks can be more complex for companies involved with the trading of cryptocurrencies or products in regulated industries. What is the geographic footprint of the company, and how supportive is the regulatory framework in those geographies? Clearly, some countries have emerged as pioneers in this space and have offered a more conducive environment for the cryptocurrency and blockchain industry, while others have taken a more cautious approach. Does the business understand the current regulatory environment and potential regulatory risks?
Next, the model evaluates the company’s business fundamentals and product momentum. Has the company been successful in adhering to its own roadmap? What is the go-to-market strategy? How is the business handling the token issuance and allocation strategy?
Overall, the company’s score on the three secondary dimensions is summarized in a score that is reflective of the founding team’s ability to execute on their vision.
The Pyramid Report—How Blockchain Companies Perform?
Figure 4
Now that we have gone through the dynamics of the model, we show how various companies fared. For this exercise, we have selected 25 blockchain companies at random and scored them on the different dimensions of the model. The results are presented above in Figure 4 and discussed below.
Key assumptions:
A company’s decision to issue tokens or crypto assets is a factor that we consider in the model. However, the current price of the company’s “token” on an exchange is not a factor that we consider. At this stage of industry evolution, the token price is reflective of speculative and macro factors in a highly unregulated space and is not an accurate representation of the “value” or future potential of the underlying business.
Methodology:
Company inclusion criteria
Company Profiles
We profile a few chosen companies within each category to explain how they fared on the various dimensions of the model.
Platform: Ethereum
Ethereum offers a platform to independently enable building decentralized smart contract applications. It comes with a Turing-complete programming language and SDKs. Applications residing on Ethereum range from tokenization to automation, and many other innovative solutions.
Ethereum has gotten enough media coverage and an ecosystem to potentially be the de facto choice among platforms. The project enjoys a large and diverse target market, owed primarily to its high solution versatility. Ethereum was founded by an excellent development team and supported by robust funding. As a challenge, one should consider the gaps in global regulatory frameworks around smart contracts. Network capacity and scalability remain a legitimate concern. Enterprise Ethereum Alliance is pushing forward and partnering with lawmakers to make smart contracts a viable, legally recognized solution.
Platform: Steemit
Steem network furnishes a social media platform that enables fair and transparent reward for sharing and curating user-generated content. It is the marriage between social media drivers and cryptocurrency innovative ideas that makes Steem network unique. There are over 300 Steem-based apps, including the Steemit social blog, DTube decentralized video platform, and Utopian open source rewarding system. According to Block’tivity, a site that monitors blockchain activity, the Seemit network generates over a million operations per day, it is capable of handling 100-fold growth.
As is evident by the number of Steem-based apps, the solution is highly versatile within the scope of content sharing and is well-positioned to be the market leader as a platform for Media applications. The project was created by a strong team and continues to improve. The network is driven by the sense of belonging of its users who organically grew into a social network of feedback providers. The target market has high potential and the number of users has been steadily increasing.
The regulatory framework is challenging due to the global variance in commitment to copyright regulations and enforcement. Overall, the project is being well-executed with high potential for growth.
Protocol: Cardano
Cardano is a protocol developed for the purpose of facilitating smart contracts. The protocol explicitly aims to improve on the shortcomings of Ethereum’s smart contracts. It also offers a cryptocurrency, named Ada, that is to be used for transactions on Cardano. Cardano has overcome the hurdle of scalability by inventing a viable Proof of Stake consensus mechanism that relies on randomly choosing the leading node that adds the next block. The company is supported by an excellent team of scientists, academics, and engineers from across the globe.
While the protocol is still under development and will take at least another year before smart contracts can be written on Cardano, the company has shown promise and performs well on execution.
API-as-a-Service: BitPay
BitPay is a payment processor for merchants that accept Bitcoin for retail or e-commerce transactions. It is arguably the oldest blockchain company and is a global leader in crypto-to-fiat payment processing. The company currently processes ~ $1 billion in transactions. Given their early leadership, deep engagement within the industry, and growing trends in cryptocurrency payments, the scope for growth remains high for BitPay to maintain its market leadership.
It is one of the few blockchain companies that is completely funded through A-list venture capital investors and not through an ICO. That also brings top-notch advisors who will help BitPay maneuver the regulatory landscape, which is particularly relevant for a payment-processor operating in multiple countries
The company has deployed clever marketing strategies, such as becoming the payment processor for major league sports teams, which has brought wider adoption among merchants based in the same cities as the sports teams
As of August 2018, BitPay has started processing payments in Bitcoin Cash as well. This is an important milestone for the company as it now processes crypto-to-fiat payments in two of the most important and widely-used cryptocurrencies. This hints at potential extensions into other markets, thus continuing with the growth momentum that the company has been experiencing since it was founded in 2011.
Exchange: Binance
Binance is a leading crypto exchange. One of the most successful crypto-companies of 2017-18 with daily transactions of 11 $billions towards the end of 2017 and expected profit of 1 Billion in 2018. Binance can handle 1.4 million transactions per second with over 6 million users. It supports over 120 coins and over 240 trading pairs. The company recently moved to Island of Malta in the EU. This move was viewed as a bold response to regulatory headwinds in China and allowed them to addresses regulatory risk.
Binance scores high on community engagement with high-quality content. From a consumer standpoint, Binance leads with most listed coins and attractive low trading fee. Their fee structure led a “fee war” with other crypto exchanges, wherein Kraken, BitFinnex proceeded to lower their fees as well.
For a company launched in July 2017, they have shown maturity in technology infrastructure, strong solution design versatility, with consumer-friendly policies, nimble response to changing regulatory climate, and strong execution.
Cryptocurrency: Bitcoin Cash
Bitcoin Cash is the most prominent and successful fork of the Bitcoin blockchain. Bitcoin Cash is a hard fork of Bitcoin and founded by developers who believed Segwit2X wasn’t enough to meet the demands of how many transactions per second a cryptocurrency should be able to process. The block size increased to 8mb, and the level of difficulty needed to mine the coins became adjustable—regardless of the number of miners supporting it.
Now sitting at the #4 position in terms of market cap across all cryptocurrencies with a 7.5 billion dollar market cap, larger investment firms, and financial institutions are taking notice, and choosing Bitcoin Cash as their underlying settlement layer for cryptocurrency transactions. They processes payments to merchants worldwide and have joined forces with Flow.io—a global cross-border e-commerce platform—to facilitate payments using Bitcoin Cash across 200+ countries.
With several other partnerships coming down the pipeline, Bitcoin Cash could be a major player in a few years and a viable and scalable alternative to Bitcoin for cryptocurrency payments across the globe.
Limitations of the model
Full Report
Presented here is a summary report. The full report will include:
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Disclaimer
This model and report are not meant to act as financial advice. Professionals should do their own due diligence.
Acknowledgement
We thank Benn Konsynski, Minaz Vastani and Jim Senn for their review and feedback on this report.
