In my continuing practice to assist businesses in their quest to implement blockchain capabilities and convert from traditional operating models to blockchain based operating models, it is clear that there are enormous legal and relationship implications to projects and businesses being built on blockchain.
I'm not talking about regulatory compliance, ICO's, Smart Contracts or any of the most common discussions of legality, but the form and legal structures to cover corporate relationship implications to a traditionally centralized business that is trying to develop or co-develop a solution, protect revenue share, etc. while building a blockchain business.
These basic concepts, concepts that in the traditional centralized model are all understood and commonly implemented, are pretty much turned on their heads in the blockchain world.To get a better understanding of the more problematic areas, let's take a look at a few of them and their impacts.
There is a tremendous amount of thinking and publication on Smart Contracts and how individuals or peers in a peer-to-peer ecosystem can work together to build, implement and protects their concerns in a blockchain business.
This thinking, however, does leave on the table the problems that traditional centralized business will face when redesigning their businesses to operating in a decentralized world.
Let's not discuss, for now, the business operating model challenges in these businesses, but just the legal implications. When taking on blockchain initiatives, many in our economy are used to collaborating with other business partners to "get the job done". This is a trait that is normal and required in a centralized world.
Centralised companies are compelled to, and frequently work with, other centralized companies to build the ecosystem required to deliver value in the traditional corporate value chains. These efforts result in partnership agreements and other legal operating entities that outline responsibilities, revenue share, IP ownership etc.
The image below from the Raconteur's excellent article on "The Future of blockchain in 8 charts" outlines a great example of the fundamentale relationship difference between the corporate structure diametric corporate structures and therefore legal considerations required under traditional vs blockchain implementations.
If you are practiced in corporate legal relationships, the above diagram, without any read on the article itself, highlights the challenges faced when moving to a blockchain model. Legal contracts, whose job it is to enforce terms of an agreed upon relationship between parties, is significantly different in a distributed operating model.
Think of the fundamental difference you have to overcome from a business perspective to be the following:
In a traditional centralized model, service providers compete to aggregate the most data and service the most customersIn a decentralized model, service providers compete to connect the most trusted peers to a network
Let's assume you overcome the conversion of your model from one to two above and build an operating model that your business can work with, you'll then be faced with the issues outlined below.
Moving entities from a centralized to a peer-to-peer model involves making a decision about who owns what in the ecosystem. That is, in a centralized model, it's easy, each party owns the piece of the work chain they perform.
True development collaboration is rare and joint partnerships worrying about who spent and did what to get "their fair share" is uncommon.In a decentralized model, where there are inevitably multiple parties trying to reinvent themselves to this new model, IP rights is a frequent point of contention and misunderstanding.
Current corporate entities just can't fathom this shift and frequently run against the rocks at this point alone.
Like the advent of the Internet, many are struggling to understand how to make money and be profitable in the blockchain era. That is understandable. The operating models are so different and the processes to perform the tasks so much lighter, that traditional companies struggle to understand the monetary dynamics of business in the blockchain era.
Their traditional business models just don't apply nor do they convert, let alone the overhead centralized companies are carrying in their traditional models. This part of the business design requires a lot of work on the part of the evolving company. A piece of advice, if your blockchain business model is trying to operate within the walls of your traditional centralized model, it will die a miserable death.
The two just can't stand together. One must evolve on its own into the future while the traditional dissolves away as the market shifts.Ultimately, understanding a multi-party revenue model will require you to think more on the lines of the right side of the image above than the traditional left side and traditional "value chain" model you are used to.
Business structures attempting to be formed around a number of the more common blockchain use cases being discussed these days are especially problematic. That is, how do existing players converting from one model to the other move them solves from a value-chain, centralized model to a peer-to-peer model in which trust, terms, etc are executed and enforced through autonomous code.
Additionally, with the reality of autonomous solutions deploying contract code to perform services, much of which is open source in the current state of evolution, how will these businesses react to their business models being consumed by open source, autonomous solutions that eliminate the need for their value add in this new peer-to-peer world?
The obvious answer for the proprietary solutions is to be a tax on the transaction stream. That is, if you can find a way to take a piece of the transaction, that's great. I certainly see this in the advent of bots that are executing and providing services, for example, for the execution of legal contracts, document management, and ownership management just to name a few.
But even these capabilities are subject to consumption by cost-free, open source solutions in the way that companies like Google were chastised in the heyday of the Internet for apparently giving away their services for free. As we now know, in reality, these companies were building a model that others couldn't comprehend; resulting in Google being number five in the top profitable companies in the US this year.
Autonomous solutions create a special operational and structural challenge for organizations that are used to operating as a cog in the wheel of corporate value and supply chains and require significant business design considerations in their adoption in this new trusted ecosystem.
The issues mentioned above are but a few of the challenges and changes that will need to be managed and controlled as centralized organizations evolve.
These challenges are of a nature that has not been seen with other technology enabled market changes and therefore, make it a substantial challenge for organizations working to understand how to survive through this upcoming market shift.
I'm not advocating that existing centralized businesses can't make the leap, they can and they are, what I'm suggesting is that when looking at blockchain projects (which most are very IT centric), one must be business led to arrive at the correct operating model, the business led MUST definitely all supporting entities as well such as legal, procurement, risk, and compliance as well....continue reading:
https://www.linkedin.com/pulse/corporate-legal-considerations-blockchain-timothy-myers
I'm not talking about regulatory compliance, ICO's, Smart Contracts or any of the most common discussions of legality, but the form and legal structures to cover corporate relationship implications to a traditionally centralized business that is trying to develop or co-develop a solution, protect revenue share, etc. while building a blockchain business.
These basic concepts, concepts that in the traditional centralized model are all understood and commonly implemented, are pretty much turned on their heads in the blockchain world.To get a better understanding of the more problematic areas, let's take a look at a few of them and their impacts.
Business Partnerships
There is a tremendous amount of thinking and publication on Smart Contracts and how individuals or peers in a peer-to-peer ecosystem can work together to build, implement and protects their concerns in a blockchain business.
This thinking, however, does leave on the table the problems that traditional centralized business will face when redesigning their businesses to operating in a decentralized world.
Let's not discuss, for now, the business operating model challenges in these businesses, but just the legal implications. When taking on blockchain initiatives, many in our economy are used to collaborating with other business partners to "get the job done". This is a trait that is normal and required in a centralized world.
Centralised companies are compelled to, and frequently work with, other centralized companies to build the ecosystem required to deliver value in the traditional corporate value chains. These efforts result in partnership agreements and other legal operating entities that outline responsibilities, revenue share, IP ownership etc.
The image below from the Raconteur's excellent article on "The Future of blockchain in 8 charts" outlines a great example of the fundamentale relationship difference between the corporate structure diametric corporate structures and therefore legal considerations required under traditional vs blockchain implementations.
If you are practiced in corporate legal relationships, the above diagram, without any read on the article itself, highlights the challenges faced when moving to a blockchain model. Legal contracts, whose job it is to enforce terms of an agreed upon relationship between parties, is significantly different in a distributed operating model.
Think of the fundamental difference you have to overcome from a business perspective to be the following:
In a traditional centralized model, service providers compete to aggregate the most data and service the most customersIn a decentralized model, service providers compete to connect the most trusted peers to a network
Let's assume you overcome the conversion of your model from one to two above and build an operating model that your business can work with, you'll then be faced with the issues outlined below.
Challenge 1 - Intelectual Property Rights
Moving entities from a centralized to a peer-to-peer model involves making a decision about who owns what in the ecosystem. That is, in a centralized model, it's easy, each party owns the piece of the work chain they perform.
True development collaboration is rare and joint partnerships worrying about who spent and did what to get "their fair share" is uncommon.In a decentralized model, where there are inevitably multiple parties trying to reinvent themselves to this new model, IP rights is a frequent point of contention and misunderstanding.
Current corporate entities just can't fathom this shift and frequently run against the rocks at this point alone.
Challenge 2 - Revenue
Like the advent of the Internet, many are struggling to understand how to make money and be profitable in the blockchain era. That is understandable. The operating models are so different and the processes to perform the tasks so much lighter, that traditional companies struggle to understand the monetary dynamics of business in the blockchain era.
Their traditional business models just don't apply nor do they convert, let alone the overhead centralized companies are carrying in their traditional models. This part of the business design requires a lot of work on the part of the evolving company. A piece of advice, if your blockchain business model is trying to operate within the walls of your traditional centralized model, it will die a miserable death.
A piece of advice, if your blockchain business model is trying to operate within the walls of your traditional centralized model, it will die a miserable death.The issue of corporate transition is a line of thought and planning all on its own, and although we won't go into detail here, do model your effort after companies that separate their innovation initiatives outside the walls of their traditional ecosystem. If you want your blockchain business to be successful, this is a must.
The two just can't stand together. One must evolve on its own into the future while the traditional dissolves away as the market shifts.Ultimately, understanding a multi-party revenue model will require you to think more on the lines of the right side of the image above than the traditional left side and traditional "value chain" model you are used to.
Challenge 3 - Autonomous Solutions
Business structures attempting to be formed around a number of the more common blockchain use cases being discussed these days are especially problematic. That is, how do existing players converting from one model to the other move them solves from a value-chain, centralized model to a peer-to-peer model in which trust, terms, etc are executed and enforced through autonomous code.
Additionally, with the reality of autonomous solutions deploying contract code to perform services, much of which is open source in the current state of evolution, how will these businesses react to their business models being consumed by open source, autonomous solutions that eliminate the need for their value add in this new peer-to-peer world?
The obvious answer for the proprietary solutions is to be a tax on the transaction stream. That is, if you can find a way to take a piece of the transaction, that's great. I certainly see this in the advent of bots that are executing and providing services, for example, for the execution of legal contracts, document management, and ownership management just to name a few.
But even these capabilities are subject to consumption by cost-free, open source solutions in the way that companies like Google were chastised in the heyday of the Internet for apparently giving away their services for free. As we now know, in reality, these companies were building a model that others couldn't comprehend; resulting in Google being number five in the top profitable companies in the US this year.
Autonomous solutions create a special operational and structural challenge for organizations that are used to operating as a cog in the wheel of corporate value and supply chains and require significant business design considerations in their adoption in this new trusted ecosystem.
The issues mentioned above are but a few of the challenges and changes that will need to be managed and controlled as centralized organizations evolve.
These challenges are of a nature that has not been seen with other technology enabled market changes and therefore, make it a substantial challenge for organizations working to understand how to survive through this upcoming market shift.
Conclusion
I'm not advocating that existing centralized businesses can't make the leap, they can and they are, what I'm suggesting is that when looking at blockchain projects (which most are very IT centric), one must be business led to arrive at the correct operating model, the business led MUST definitely all supporting entities as well such as legal, procurement, risk, and compliance as well....continue reading:
https://www.linkedin.com/pulse/corporate-legal-considerations-blockchain-timothy-myers
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Francisco Gimeno - BC Analyst As the new ecosystem based on blockchain arrives slow changing business and those who don't see the need to change will dissappear. Bold businesspeople who are ready to change the foundations of their enterprises towards adaptation to the new ecosystem will have to live in "interesting times" but their reward will be not just survival but success. Everything in business is touched by Blockchain.