by Don Tapscott
There is advertising, perhaps from third parties or maybe from the HR department about open enrollment or changes in insurance plans, but you, not Facebook, get revenue or some reward for paying attention. This is called an “attention market.” You could receive microcompensation for agreeing to view or interact with an advertisement, or for feeding back in detail about a new product pitch, or just about anything else, such as transcribing CAPTCHAs40 or scanned documents.
The news stream, publishing system, and the attention market all look similar, but payments flow differently for each. Said ConsenSys’s Joe Lubin, “You pay for publishing. Companies pay for your attention. The news stream has no payment flow. I am happy to read your stream, because I value that social connection, but I am not going to pay to see a picture of you and your buddies drinking at a bar, or to read your opinion on the Blue Jays pitching staff.”41
You also participate in or create topical discussion channels, where you configure your privacy. Privacy is enhanced in other manners too. For example, spy agencies can’t conduct traffic analysis because they are unable to discern the source or destination of messages.
There would also be a nifty mechanism for finding people and feeds that you might care about. In addition, distributed tools aggregate and present interesting new people or information for you to follow or friend, possibly using Facebook’s social graph to help out. Lubin calls this “bootstrapping the decentralized Web using the pillars of the centralized Web.”42
Experience shows that value ultimately wins out in the digital age. The benefits of this distributed model are huge—at least to the users and companies. The huge resources of social media companies notwithstanding, there is no end to the richness and functionality that we can develop in such an open source environment. Compare the power and success of Linux versus proprietary operating systems. Blockchain technologies ensure security. Your privacy is completely configurable. No social media company can sell or leak your personal information to government agencies without your permission. If you’re a dissident in a totalitarian country, no one can track what you have read or said online. Because you own your data, you can monetize it along with your attention and efforts. You share in the wealth of big data.
Companies too should be enthusiastic about their employees’ using such platforms for business. To attract talent, firms need to show integrity and respect their employees’ security and privacy. More important, as any firm works to become networked, approaching talent outside its boundaries, they can offer up such interenterprise collaborative platforms that their partners can trust. Time will tell.
In summary, these are seven of the emerging business models whereby both companies large and small can make it “rain on the blockchain.” Overall, the open networked enterprise shows profound, even radical potential to supercharge innovation and harness extraordinary capability to create good value for shareholders, customers, and societies as a whole.
HACKING YOUR FUTURE: BUSINESS MODEL INNOVATION
As for a company managed by software agents, Ronald Coase must be high-fiving up there somewhere in Economists’ Heaven (although some might dispute that such a place exists). Remember the reverse of Coase’s law? A corporation should shrink until the costs of transactions inside are less than the costs of transactions outside its boundaries. As technology continues to drop costs in the market, it’s conceivable that corporations could and should have very little inside—except software and capital.
Think about it.
To begin, the cost of “search” continues to drop as new agents have the ability to conduct three-dimensional searches of the World Wide Ledger of everything commercial that exists or has existed. So no need for a corporate library, information specialists, HR search specialists, or the myriad other professionals involved in acquiring pertinent information to run a business.
Second, smart contracts would radically reduce the costs of contracting, policing contracts, and making payments. No longer paper, these programs could formulate their terms through a series of templates; bargain, accepting or rejecting terms and conditions based on rules and extensive information collected from external sources; formulate self-enforcing policies; determine when performance conditions have been met; and execute transactions.
Third, the cost of coordination of all these resources outside the organization could be trivial—measured in the energy to power the servers hosting the enterprise software. As for managing humans, organizations, and factories hired by the enterprise, the enterprise has no need for bureaucracy. With the new platform we can imagine a new organization that requires little or no traditional management or hierarchy to generate customer value and owner wealth.
Finally, the costs of establishing trust would approximate zero. Trust does not rest with the organization, but rather within the functionality, security, and auditability of the underlying code and the mass collaboration of the countless people securing the blockchain.
How would you go about designing a distributed autonomous enterprise? Such an entity could have rich functionality—agents executing ranges of tasks or more broadly business functions all based on a preapproved charter. Individuals, organizations, or collectives of potential shareholders or users will design them by defining the following:
1. Conviction: a belief about the world and what needs to be done to create value or change things.
2. Purpose: its reason for existence. Why are we creating this enterprise in the first place?
3. Constitution: outlines the overall objectives of the enterprise and the rules by which it will create value.
4. Modus operandi: for example, how it will go about creating this value. How it will fund itself—through crowdfunding, traditional early-stage investment, or using revenue. How it will acquire resources.
5. Division of labor between humans and technology: for the foreseeable future, perhaps humans should be in charge.
6. Application functions: how the enterprise will sense and respond to changing conditions.
7. Moral guidelines: Google’s promise to “Do No Evil” is not going to be good enough. The DAE needs some clear guidelines about what is and isn’t acceptable behavior.
There may not be a distributed autonomous enterprise in your near future, but the thinking behind these new entities can inform your business strategizing today. With the rise of a global peer-to-peer platform for identity, trust, reputation, and transactions, we can finally re-architect the deep structures of the firm for innovation, shared value creation, and perhaps even prosperity for the many, rather than just wealth for the few. Now you have at least seven emerging business models that could help you shake some windows and rattle some doors in your industry while distributing wealth more democratically.
Overall, smart companies will work hard to participate fully in the blockchain economy rather than play its victims. In the developing world, the distribution of value creation (through entrepreneurship) and value participation (through distributed ownership of the firm) may hold a key to reconciling the prosperity paradox. Our story becomes even more interesting when you consider that billions of agents will be embedded in the physical world. Which takes us to the next chapter.
CHAPTER 6
THE LEDGER OF THINGS:
ANIMATING THE PHYSICAL WORLD
A power pole collapses at eight o’clock on a hot night in the remote outback of Australia. This is a problem for William and Olivia Munroe, who raise sheep and cattle one hundred miles outside the old gold mining town of Laverton, on the edge of the Great Victoria Desert.1 In the summer, the temperature frequently soars close to 120 degrees Fahrenheit (48.9°C). Their children, Peter and Lois, attend school via satellite link, the family’s only means of accessing health services in case of illness or emergency. Although the Munroes have a backup generator, it can’t power the water pumps, communications, and air-conditioning for long. In short, the lives of the Munroe family depend entirely upon reliable energy.
At daybreak
, nine hours later, the power utility sends out a team to find and fix the downed pole. Customer complaints give the company an idea of where the break occurred, but the team takes more than a day to identify, reach, and fix the pole. Meanwhile, the Munroes and nearby residents, businesses, and institutions go without power and connectivity at considerable inconvenience, economic impact, and physical risk. In the outback, blackouts are not just paralyzing; they’re dangerous. To minimize these hazards, at great expense the company deploys teams of inspectors to check the extensive network regularly for downed or deteriorating poles.
Imagine how much safer, easier, and cheaper it would be if each power pole were a smart thing. It could report its own status and trigger actions for replacement or repair. If a pole caught fire or began to tip or fall for any reason, it would generate an incident report in real time and notify a repair crew to come with the appropriate equipment to the precise location. Meanwhile, the pole could potentially reassign its responsibilities to the nearest working pole. After all, they’re all on the grid. The utility could restore power to the community more quickly without the huge ongoing costs of field inspection.
POWER TO THE PEOPLE
That’s just the beginning. Using emerging software and technologies associated with the Internet of Things, we can instill intelligence into existing infrastructure such as a power grid by adding smart devices that can communicate with one another. Imagine creating a new flexible and secure network quickly and relatively inexpensively that enables more opportunities for new services, more participants, and greater economic value.
This configuration is known as a mesh network, that is, a network that connects computers and other devices directly to one another. They can automatically reconfigure themselves depending upon availability of bandwidth, storage, or other capacity and therefore resist breakage or other interruption. Communities can use mesh networks for basic connectivity where they lack access or affordable service. Mesh networks are alternatives to traditional top-down models of organization, regulation, and control; they can provide greater privacy and security because traffic doesn’t route through a central organization.2
Organizations are already combining mesh networks with blockchain technology to solve complex infrastructure problems. Filament, an American company, is experimenting with what it calls “taps” on power poles in the Australian outback. These devices can talk directly to each other at distances of up to 10 miles. Because the power poles are approximately 200 feet apart, a motion detector on a pole that’s falling will notify the next pole 200 feet away that it’s in trouble. If for any reason the tap on that pole isn’t available, it will communicate with the next pole, or the next pole (up to 10 miles) that will communicate to the company through the closest Internet backhaul location (within 120 miles).
With the tap’s twenty-year battery and Bluetooth low energy (BLE) technology, customers can connect to the devices directly with their own phone, tablet, or computer. The tap can contain numerous sensors to detect temperature, humidity, light, and sound, all of which customers could use to monitor and analyze conditions over time, maybe to develop predictive algorithms on the life cycle or impending failure of a power pole. Customers could become weatherNodes or meter these data as an information service or license the data set through the blockchain to another user, such as a government, broadcaster, pole manufacturer, or environmental agency.
Filament’s business model is a service model involving three parties: Filament, its integration customer, and the utility company. Filament owns the hardware; its devices continually monitor the condition of the power poles and report changes, whether they’re fallen, on fire, or compromised by dust accumulation or brush fire smoke. Filament sells the sensor data stream to the integrator, and this integrator sells to the utility.
The utility pays monthly for a monitoring service. The service enables the power company to eliminate the very expensive field inspection of its operations. Because power poles rarely fall, the power company rarely uses the actual communication capability of the mesh network, and so Filament could deploy the excess capacity of the taps for other uses.
“Since Filament owns the devices, we can sell extra network capacity on top of this network that spans most of the continent,” said Eric Jennings, Filament’s cofounder and CEO. “Filament could strike a deal with FedEx to give their semitrucks the ability to send telemetry data to HQ in real time, over our network in rural Australia. We add FedEx to the smart contract list, and now they can pay each device to send data on their behalf.”3 FedEx drivers could use the mesh network for communications and vehicle tracking across remote areas to indicate estimated arrival times and breakdowns. The network could alert the nearest repair facility to dispatch the necessary parts and equipment.
Blockchain technology is critical. This Internet of Things (IoT) application depends on a Ledger of Things. With tens of thousands of smart poles collecting data through numerous sensors and communicating that data to another device, computer, or person, the system needs to continually track everything—including the ability to identify each unique pole—to ensure its reliability.
“Nothing else works without identity,” said Jennings. “The blockchain for identity is the core for the Internet of Things. We create a unique path for each device. That path, that identity, is then stored in the bitcoin blockchain assigned to Filament. Just like a bitcoin, it can be sent to any address.”4 The blockchain (along with smart contracts) also ensures that the devices are paid for so they continue to work. The Internet of Things cannot function without blockchain payment networks, where bitcoin is the universal transactional language.
Social Energy: Powering a Neighborhood
Now, instead of poles, imagine digitizing every node in a power system to create entire new peer-to-peer models of power production and distribution. Everyone gets to participate in a blockchain-enabled power grid. Under a New York State–sponsored program to increase energy resiliency even in extreme weather conditions, work is under way to create a community microgrid in the Park Slope area of Brooklyn. Once built, this microgrid and its locally generated power will provide resiliency in emergencies and reduce costs to customers while promoting clean, renewable electricity, energy efficiency, and storage options in the community.
While campus microgrids have been around for a while, they aren’t common in residential areas. Most home owners, businesses, governments, and other organizations in urban North America get their power from regulated utilities at regulated prices. Currently, we have more variety in locally generated renewable energy from, say, solar panels on rooftops. The local utility captures excess power in its supply for redistribution at wholesale rates, often with considerable leakage. The consumer, who may be located across the street from a local power source, still must go through the utility and pay full retail for renewable energy generated by their neighbor. It’s ridiculous.
“Instead of the command-and-control system the utilities have now where a handful of people are actually running a utility grid, you can design the grid so that it runs itself,” said Lawrence Orsini, cofounder and principal of LO3 Energy. “The network becomes far more resilient because all of the assets in the grid are helping to maintain and run the utility grid.”5 It’s a distributed peer-to-peer IoT network model with smart contracts and other controls designed into the assets themselves (i.e., the blockchain model).6 When a hurricane destroys transmission towers or fire cripples a transformer substation, the grid can quickly and automatically reroute power to prevent a massive blackout.
Resiliency isn’t the only benefit. Locally generated power, used locally, is significantly more efficient than the utility-scale model, which relies on transmitting energy across vast distances, where energy is lost. LO3 Energy is working with local utilities, community leaders, and technology partners to create a market where neighbors can buy and sell the local environmental value of their energy. “So, instead of paying an energy services company that’s buyi
ng renewable energy credits, you get to pay the people who are actually generating the electricity that is serving your house, that is local and green, and that actually has an environmental impact in your neighborhood. It seems a lot fairer, right?” said Orsini.7 Right!
If you can locate each of the assets and assign locational value for generation and consumption, then you can create a real-time market. According to Orsini, you can auction your excess energy to your neighbors who might not be able to generate renewable energy. In doing so, your community can create energy resiliency through peer-to-peer trading. Community members can reach consensus on the rules of the real-time microgrid market such as time-of-day pricing, floor or ceiling prices, priority given to your nearest neighbor, or other parameters so as to optimize price and minimize leakage. You will not be sitting at your computer all day long setting prices, offering to buy or sell.
Future microgrids will harvest heat from the computational power needed to create and secure this transactive grid platform. Distributing the computing power to buildings in the community and using the higher temperatures generated to power heating, hot water, and air-conditioning systems increases the productivity of the same energy. “Our focus is on increasing Exergy,” says Orsini.
With increasing generation of renewable power at the local level, the Internet of Things is challenging the regulated utility model, and not a moment too soon. We need to respond to climate change and brace ourselves for increasingly extreme weather conditions, particularly melting ice caps that drown islands in oceans, and droughts that turn dry land into desert. Currently, we’re losing about fifteen million acres per year to desertification, the worst losses in sub-Saharan Africa where, unlike the Munroes of the outback, people can’t afford water pumps, air-conditioning, or migration.8 We need our utility grids and our engines not to leach energy and carbon into our atmosphere. While the utilities are looking at IoT benefits to their existing infrastructure (“smart grid”), connecting microgrids could lead to entirely new energy models. Utility companies, their unions, regulators, and policy makers, as well as innovative new entrants such as LO3, are exploring these new models for generating, distributing, and using electricity first at the neighborhood level and then around the world.