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This article is by Featured Blogger Sergio Pereira, Founder and CTO, TechHQ originally published on his Blog Page. Republished with the author’s permission.
Enterprises are now actively exploring Blockchain. They are doing it mostly on a very private level, where it returns the lowest benefits. They all see that Blockchain can bring tremendous value to their industries, but that requires bringing together otherwise distrusting and even competing parties.
Great things in business are never done by one person. They're done by a team of people. - Steve Jobs
Let’s use a very academic case: the English Premier League. Let’s imagine that Manchester United comes up with an ingenious idea to bring together all the league participants. In this hypothetical case, the idea would be to split the TV rights and Sponsorship funds transparently and fairly through the Premier League’s clubs, in a way that they wouldn’t need the League itself taking a fair share of the profits to act as a centralised intermediary.
Everyone’s default is to not trust others
Being Manchester United the proponent of such an idea, by default every other team would frown upon giving them any special control in a revenue sharing scheme. The current state is to trust the League as an intermediary, who is incentivised to do the right thing because it is taking a cut of the profits. By default, no club would trust Man Utd (or any other particular club, for that matter) to organise an alternative revenue sharing system.
Create Consortium slots with equal privileges
As such, what Manchester United should do is to create a Consortium Blockchain with 20 seats, one for each club in the League. These seats should entail exactly equal privileges and obligations, and the Blockchain based revenue sharing system should only be started when all the 20 clubs sign the paperwork to be a part of the Consortium. This way, although Man Utd occupies the first seat in the consortium, other clubs will not feel threatened by being a part of the Consortium, since Man Utd can’t extract any advantage or have more control than any other club.
Roll out the Security Token publicly in advance
What Man Utd should do upfront is to develop the smart contract to support a Token that reflects the reasoning described. This token should have 20 seats that entail equal rights and responsibilities and would be launched this token publicly in the Ethereum main net (or any other public ledger). By doing this, all other clubs can review the publicly available smart contract and verify that it does what it is supposed to do before joining the consortium.
Selling the idea to Consortium peers
In order to make this consortium operational, all the 20 clubs in the league need to join, and Man Utd, as the proponent of this new solution, needs to pitch them. Man Utd has a compelling story to make their competitors join the Consortium, since there’s no way they can feel threatened by Man Utd being the proponent of the idea, it entails no relative advantage to any other Consortium participant. Once all clubs join the consortium, the clubs can share the profits among themselves, and not need to rely and pay intermediaries, such as the English Premier League itself and other brokers and agents in such negotiations.
The case of Blockchain Consortiums for Enterprises
I should stress again that this English Premier League is merely an academic example, which as no touchpoints with reality (to my knowledge, at least). However, the exact same thinking is happening right now in Enterprises across industries and geos. At TechHQ we’ve been approached again and again by big companies that want to cut costs or increase revenues by collaborating with parties they don’t necessarily trust, such as suppliers, other industry players and even competitors.
How to be the Consortium Proponent, without inhibiting other participants
Several Partners, CTOs and even Board Members of big companies have approached me saying they want to build a Consortium Blockchain to leverage some opportunity in their industry. Often they mention the conundrum that being the Consortium Proponent represents. While that first Consortium participant can bring significant upside in terms of immediate funds to support the venture, it can also significantly deter other Consortium participants to join. My recommendation is to do just like Manchester United in the example above, build equally privileged seats in your Consortium Blockchain, with a reasonable consensus algorithm, deploy the smart contract publicly, then accept the new participants into the consortium in exchange for one seat until you have enough participants to fulfill the objectives of the Consortium solution.
Blockchain can be a solution whenever there are business opportunities that depend on the collaboration between mutually distrusting parties. Bitcoin is the poster child of public blockchain applications and one of those use cases, where the banks are paid to be the trusted intermediary that enables traditional payments between individuals who don’t necessarily trust each others.
Where public blockchains enable trust between individuals, consortium blockchains enable trust between enterprises. Consortiums are typically needed to bring otherwise distrusting parties together around a standard that allows them to remove an intermediary and increase the profitability for everyone. These can be different companies in a supply chain, in the banking industry, or even different departments inside a big organisation.
Many of the cases in an Enterprise environment are best solved with a Consortium, and my recommendation to roll out one is what I’ve outlined above in the Man Utd example.