When Does Using Blockchain Make Sense? Lessons from SXSW 2018

We just got back from SXSW 2018. If you haven't been before it's an amazing event with all kinds of interesting tech and speakers to nerd out on. From an investor's perspective it's also another opportunity to gain some insight into what's "hot" right now. There was the expected assortment of Artificial Intelligence and Virtual Reality applied to industries I never thought required such tech. Maybe I'm alone here, but I don't think there's much of a market for AI optimized VR lawn-mowing. The unquestionable theme this year however appears to be Blockchain along with tokenized products and ICOs.

While there are numerous valuable applications for Blockchain, I fear that the hype has lead to massive overuse by entrepreneurs. It can often create a huge distraction and stifle otherwise promising founders from reaching their full potential. So before you rush off to find how to integrate Blockchain into your company, take the Blockchain Litmus Test to figure out if it's really adding value.

If you aren't familiar with the concepts of Blockchain, Cryptocurrencies, or Initial Coin Offerings, don't worry. You're not alone by any stretch. Rather than create another redundant article explaining the topic however, I would encourage your to read the CB Insights article "What Is Blockchain Technology?".

Blockchain is definitely an exciting topic for anyone in the tech space. With platforms like Etherium, the applications for blockchain appear endless. Financial markets, cyber security firms, supply chains, insurance claims, etc. are just a few of the applications looking to Blockchain as the next big wave in technology.

Importantly however, most entrepreneurs are taking this a step further and introducing their own tokenized platform based on blockchain and leveraging that to launch an initial coin offering (ICO). The theory being it's a potentially quick way to raise funding for your company without giving up equity.

The trouble is, not every problem can be solved by blockchain. Just because you can find a way to introduce blockchain to an industry or to your product does not necessarily mean it is the best thing to do. So if you're an entrepreneur wondering if blockchain is something worth looking into, here's my litmus test:

If the problem you are working on is one that you can imagine blockchain being invented in order to solve, then it is worth considering.

There are numerous applications for blockchain that make a lot of sense. I think it will be incredibly valuable and disruptive to numerous industries. Global currencies in particular will feel this in the coming years once the acceptance of cryptocurrencies for payments start to become more ubiquitous.

The point of the litmus test is to force entrepreneurs to think twice before introducing blockchain to their company. Don't look to blockchain just because it's hot or just so you can launch an ICO. I know an ICO sounds appealing. Some companies have raised tens of millions using them. The challenge is that a huge number of ICO's fail and if blockchain isn't a core aspect of your value proposition you are putting your business at a tremendous disadvantage. Investors, strategic partners, and especially customers will all be confused about what you're doing and none of them will buy into it. Entrepreneurs risk discrediting themselves not because the problem they're solving isn't real, the market size isn't appealing, or the underlying business isn't a tremendous opportunity. The risk is simply due to the fact that needlessly introducing blockchain creates a cloud of confusion preventing people from seeing your true potential.

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James Shomar
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