Blockchain and the Platform Economy for IT Managers

Introduction

Digital platforms have been “characterized by (1) technology: a technological architecture constituted of a modular core, standardized interfaces, and complementary extensions, and (2) social processes: a set of governance mechanisms to manage an ecosystem of independent complementors who complete the platform’s value proposition by co-creating its value” (Saadatmand et al., 2019, p. 1).

Over the past several decades, digital platforms have spawned new business models, including those facilitating direct peer-to-peer interactions among decentralized parties (peer-to-peer) (Burtch et al., 2018). Blockchain technology offers the opportunity to build upon these models by allowing “the transition to instant, automated labor contracts, serving international regulatory agreements” (Anagnostakis et al., 2021, p. 7).

This transition to blockchain as an enabler for decentralized and distributed business models introduces a new paradigm for Information Technology (IT) managers. In this new paradigm, IT managers are no longer acting as direct intermediaries working to facilitate interactions between parties.

Blockchain and the Platform Economy for IT Managers

It may take some time for participants of the platform economy to fully develop new organizational models that take blockchain technology into consideration; however, there are some early examples of organizations trying to grapple with this paradigm shift. One such example is Uniswap Labs, which was created by Hayden Adams, the founder of the Uniswap Protocol (Uniswap 101: What is Uniswap?: Uniswap Labs, 2023). Uniswap Labs has created several versions of the Uniswap Protocol alongside various applications that allow users to interact with the protocol seamlessly; however, users do not necessarily need to use an application built by Uniswap Labs to interact with the underlying protocol (Uniswap 101: What is Uniswap?: Uniswap Labs, 2023).

The case of Uniswap Labs implies that there are at least three opportunities for organizations to leverage blockchain within the platform economy: developing protocols, developing applications on top of protocols, and interacting with protocols.

The first opportunity presents perhaps the most challenging questions for IT managers working in the platform economy. These questions include: when is it appropriate to apply blockchain technology, should the protocol be entirely decentralized or only partially (Anagnostakis et al., 2021), how often can new versions be released if new versions can be released at all, what information needs to be stored on the blockchain, where is it appropriate to have pointers in place of source data (Albizri & Appelbaum, 2021), and how do you make sure business strategy is aligned to ensure the blockchain implementation is a true competitive advantage (Santa et al., 2020)?

As of today, there are three separate versions of the Uniswap protocol, each of which “will function in perpetuity, with 100% uptime, provided the continued existence of the Ethereum blockchain” (The Uniswap Protocol, n.d., Introduction). This model introduces rigidity that may not be familiar to most IT departments and necessitates adaptation to conventional agile software development, which is now a mainstream practice (Ebert & Paasivaara, 2017).

Protocol developers may be creating the next iteration of “digital multisided platforms” (Acs et al., 2021, p. 2). While this presents many opportunities, there are unique challenges to ensure that firms are able to secure a competitive advantage when building these protocols- highlighting the importance of IT and business strategy alignment (Santa et al., 2020).

Organizations building applications on top of protocols may find their situation to be the most similar to the current paradigm, with the exception that the underlying systems logic is not owned by and cannot be changed by their IT departments. These organizations will have to operate within the constraints established by the protocol. They will also be faced with decisions about which data gets maintained internally, which data gets stored solely on-chain, choosing robust protocols to build upon, how to audit the capabilities and security of protocols (Yang et al., 2020), and how to differentiate themselves from competitors who could potentially build the same application layer. Additionally, these organizations may find opportunities to enhance protocols with features offered by traditional platforms but out of the scope of a blockchain protocol. It may even be appropriate for the protocol developers to create an application layer to accompany their protocol upon release.

The third opportunity for organizations to interact with protocols to build a business represents organizations that do not intend to build a protocol or an application layer but rather leverage the services offered by the protocols. An example of this is Owen Logistics, a tracking and logistics company that claims it used the Helium Network, a blockchain solution that provides LoRaWAN coverage for IoT devices, to lower costs by 47% and track upwards of $2MM of equipment (Owen Equipment Protects Against Theft and Simplifies Operations with LoneStar Tracking 2023).

Owen Logistics chose to use an integrator, LoneStar Tracking, to implement its blockchain solution (Owen Equipment Protects Against Theft and Simplifies Operations with LoneStar Tracking 2023). This demonstrates that there are still technical hurdles that organizations will need to overcome when leveraging blockchain solutions. Companies will continue to face traditional trade-offs, such as whether to build information systems in-house or to work with third parties (Toth, 2005).

There are several other examples of companies leveraging blockchain as a digital platform for use in the payments realm. Specifically, there have been multiple networks set up to serve as alternatives to the SWIFT network (a network used to facilitate cross-border payments), including the Interbank Information Network developed by J.P. Morgan and the Blockchain World Wire payment system launched by IBM (BAYRAM, 2020).

These examples encapsulate protocol developers such as J.P. Morgan, which “developed a blockchain network named Quorum, which uses the cryptocurrency Ethereum as the means of exchange between different fiat currencies involved in the payment” (BAYRAM, 2020, p. 183), application developers such as IBM, which “used the Hyperledger Fabric technology from the Linux foundation to launch Blockchain World Wire payment system” (BAYRAM, 2020, p. 183), and member banks of each of these systems which are ultimately using the protocols to facilitate cross-border payments.

Conclusion

It is likely that IT managers will continue to face traditional challenges as blockchain technology is implemented within the platform economy. These challenges include the aligning of IT strategy and business strategy (Santa et al., 2020) and the trade-off between building information systems in-house and working with third parties (Toth, 2005). However, there may also be new challenges introduced, such as the trade-off between centralization and decentralization (Anagnostakis et al., 2021), how to audit smart contracts for vulnerabilities and functionality (Yang et al., 2020), and how to operate within the constraints of pre-existing protocols which may offer less flexibility than the current paradigm.

References

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