As David Packard, co-founder of Hewlett-Packard, so aptly stated: "More businesses die from indigestion than starvation." While this applies to all businesses, I believe that startups should pay close attention. This sage advice is meant as a warning to overzealous entrepreneurs who get too far in over their heads when launching a company, product or service — and it’s perhaps even more valid when it comes to startups in the blockchain space.
In a mere 10 years, the blockchain technology has turned the world upside down. Over the past year, it has become apparent just how much blockchain technology has had an impact. Many well-known companies have launched their own initiatives to bring blockchain technology to everything from online shopping, to grocery supply chain management.
Fortune 500 companies are entering the fray.
Earlier this month, Facebook revealed it will be creating a cryptocurrency called Libra, which is backed by a variety of traditional currencies. The cryptocurrency will be managed on its own blockchain and the social media behemoth plans to use it as a cross-border payment transfer tool for its worldwide user base. Rumors are also currently circulating that Samsung is building on top of Ethereum. Unlike Facebook, Samsung has chosen to fork the Ethereum codebase to power its blockchain strategy — this may also include Samsung Coin, a cryptocurrency powered by the mobile phone company. Samsung has also announced it will be incorporating cryptocurrency hardware wallets into some of its mobile devices. Earlier this year, JPMorgan decided to test the blockchain waters by issuing its own digital asset, JPM Coin, on the Ethereum blockchain. My company holds some Ethereum and uses it to power token transactions to our community.
Should you start your own blockchain or build on an existing one?
Within startups creating tools and software built on blockchain technology, it seems to have become a badge of honor to launch a proprietary blockchain. This decision shouldn’t be made light-heartedly. It takes a massive amount of development effort to create and maintain the codebase that powers a blockchain, not to mention community buy-in to ensure your blockchain remains secure. If there aren’t enough nodes being run to verify transactions on your blockchain, it could become compromised in a 51% attack.
Samsung, Facebook and JPMorgan are all taking unique approaches that require different amounts of development effort. Facebook is taking the most complex approach by creating its own blockchain. The company is also charging a staggering $10 million per license for those who would like to run a node to verify transactions. Samsung’s approach requires much less effort. By forking the current Ethereum code, they can begin with a proven blockchain on which they can improve how they desire. By building JPM Coin on the Quorum version of the Ethereum codebase and inviting other enterprises to participate, JPMorgan can focus the grand majority of its efforts on building utility and use-cases around its cryptocurrency, rather than having to solely own the herculean task of maintaining a blockchain.
It takes hundreds of thousands of development hours to create blockchain platforms like Etherum. It would take a sizable capital investment for a company to achieve the same results on its own. Facebook may be able to make such an investment, but for a startup, it would likely be impossible to achieve this while also building a usable product or service to run on top of said blockchain.
A Lesson From SpaceX
A great example of the benefits of using existing technology (rather than starting or building your own) is the Space Tech industry. There are now hundreds of startups trying to innovate in outer space. These companies are boldly going where no one has gone before, revolutionizing everything from mining (not the hash rate kind), to communications, to tourism and even aiming to colonize far-off worlds.
If you were starting a satellite internet company, you’d have a massive workload on your plate. You’d need to build the satellites, code the software for the satellites, generate a customer base and accomplish countless other things before you see your company turn a profit. Once you’ve accomplished all those goals, you would still need a launch vehicle to send your satellites into space to begin relaying data for your customers. You have two options here: Build a launch vehicle or use someone who specializes in launch vehicles to send your satellites into outer space. When you perform a cost analysis, it quickly becomes apparent that building your own launch vehicle is going to cost too many man-hours and too much capital. Instead, contracting with a company like SpaceX or RocketLab means you can focus 100% of your efforts on the area of your business that will help you serve your customers and differentiate from the competition.
Outsource your blockchain.
No matter what your blockchain startup is building, it likely makes more sense to build on top of an existing blockchain. This will allow you to focus on your core competencies, instead of muddying the waters so to speak. As the legendary Peter Drucker said, "Do what you do best and outsource the rest!" This advice should be (and is often not) applied to blockchain startups.
Just as in the traditional startup world, budgets for blockchain startups are very tight. Creating your own blockchain will likely become your biggest development drain. Instead, utilize an existing blockchain that fits your needs, allowing you to focus on everything else that really matters.
To identify the best blockchain technology for your needs, first determine which traits to prioritize. Different blockchains are driven by different purposes. Some quickly process transactions, others enable programmatic transactions. Perhaps you only need a value store. Once you determine what’s most important, you can figure out which existing blockchain can best support your efforts and get to work.
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