Blockchain & Money: Session 12: Assessing Use Cases by M.I.T. Sloan School of Management with Professor Gary Gensler

Blockchain and Money–Class/Session 12–Prof. Gary Gensler MIT Sloan School of Management

Session 12: Assessing Use Cases

Session 12 Study Questions:
- What potential benefits–in terms of reducing costs of trust–are there when adopting blockchain technology applications? How might potential use cases be assessed for the trade-offs of decentralized vs. centralized applications?
- What are the potential strategic benefits from blockchain applications? What are the attributes of potential use cases and sectors that might best capture value from such applications? How important are the benefits of censorship resistance to this analysis?
- How can you separate rigorous analysis from mere assertion and hype in the blockchain ecosystem?

Session 12 Readings:
- ‘Geneva Report’ Chapters 2 & 3 (4-30), Chapter 5 (51-55), Casey, Crane, Gensler, Johnson, and Narula.
- ‘Blockchain beyond the hype: What is the strategic business value?’, McKinsey.
- ‘A Letter to Jamie Dimon’, Chain.
- ‘The promise of the blockchain technology’, Economist.

Overview: ‘A Letter to Jamie Dimon’; ‘Blockchain beyond the hype: What is the strategic business value?’; Potential Use Cases; Assessing Costs and Benefits; Conclusions.

‘A Letter to Jamie Dimon’
- Crypto Assets:
  - ‘New asset class that enable decentralized applications’
  - ‘Mechanism to allocate resources to a specific form of organization’
  - ‘Incentives entities to share…services (sic)…with the network’
- Decentralized Applications:
  - ‘New model for creating, financing, and operating software services’
  - ‘Without a central operator of those services’
- There are structural trade-offs from the design
- Censorship Resistance key–both individual or Market

‘Blockchain beyond the hype:…’, McKinsey
- Blockchain
  - Does not have to disintermediate to generate value
  - Short-term value will be predominantly in reducing cost, particularly for record keeping and verifying functions.
  - 3-5 years away from feasibility at scale–technical challenges and competition paradox
- Capturing Value
  - Be pragmatic and skeptical at a granular level focusing on true pain points
  - Tailor strategy to market position, considering ecosystem & regulatory barriers
- Particularly valuable in low-trust environments.
  - Where can’t trade directly
  - Which lack intermediary

Financial Sector Potential Use Cases
- Venture Capital–Crowdfunding through Initial Coin Offerings–Class 19 & 20
- Payment Systems–Cross border, Large interbank, & Retail–Class 13 & 14
- Loan Issuance & Trade Finance–Digitizing paper-based processes–Class 22
- Clearing, Settlement and Processing–Securities & Derivatives–Class 21
- Digital IDs and Data Reporting–Class 23
- Central Bank Digital Currency & Private Stable Value Tokens–Class 15 & 16

Non-Financial Potential Applications
- Supply Chain Management–Class 22
- Digital Identity–Class 23
- Property & Asset Registries
- Device-to-device transactions in the ‘Internet of Things’
- Medical records

Potential Use Cases–McKinsey Reading
- Record Keeping
  - Static Registry–Land title, Food Origin, Patent
  - Identity–Identity Fraud, Civil records, Voting
  - Smart Contracts–Insurance, Trading, Music
- Transactions
  - Dynamic Registry–Fractional investing, Supply Chain
  - Payments–Cross-border, Claims
  - Other–ICOs

Use Cases: Assessing Costs & Benefits
- Benefits of blockchain technology?
  - What problem or ‘pain point’ is being solved for stakeholders? For a company?
  - What value is being created or captured?
  - What are competitors doing to address similar ‘pain points’?
  - Why is blockchain technology the best solution?
- What are the specifics of the blockchain use case?
  - Which costs of verification or networking can be reduced?
  - Which transactions need recording?
  - Which stakeholders need write and read access to ledgers?
  - What is the customer interface and how is it better than current interface?
- Costs of technical challenges and transition?
  - What trade-offs of scalability, performance, privacy & coordination are necessary?
  - Can Permissioned blockchain adequately address use case?
  - How can broad adoption be realized?
- Are net benefits sufficient?

Key Questions for Companies Designing Blockchains–(MIT Sloan Management Review–Fall 2018)

What Are You Trying To Do?	What Value Do You Want To Capture?	For Whom?
-Record	-Information and knowledge	Customers
-Track	-Attribution and responsibility	Employees
Verify	Access or permission	Suppliers
Aggregate	Decision rights or votes	Producers or makers
	Ownership or incentives	Creditors or investors
	Reputation and trust	Governments
	Contracts	Citizens
	Transactions

Benefits of Blockchain Technology:
- Verification Costs:
  - Direct Costs
  - Privacy Costs
  - Censorship Risks
  - Settlement and Finality Risks
  - Costs of Trust
  - Economic Rents
- Networking Costs:
  - Tokens Incentive System–Reward, Affinity or Identity
  - Start-up Costs
  - Operating Costs

Conclusions:
- Blockchain Technology can address Costs of:
  - Verification
  - Networking
- Assessing Potential Use Cases–The Devil is in the Details
- Must Address why use Blockchain vs. Traditional Data Base?
  - Why Public Blockchain vs. Private?
- Permissionless Blockchains need Address why Open to All? Why use Tokens?

Biblio:

Gary Gensler. 15.S12 Blockchain and Money. Fall 2018. Massachusetts Institute of Technology: MIT OpenCourseWare, https://ocw.mit.edu. License: Creative Commons BY-NC-SA.

Video Link: Session 12 Assessing Use Cases