There is a lot of talk about blockchain technology these days. This technology has come a long way since it was primarily associated with crime (for instance, crypto currency, which is based on blockchain technology, was the main means of exchange in the now defunct, online black-market, Silk Road). It is now being touted as a revolutionary technology, whose influence for business and society may be even more important than the World Wide Web or the Internet.
So, I spent the last few days trying to develop a grasp of what blockchain technology is, its relevance for marketing, and key (managerial and research) issues emerging. I thought that I would put some notes together to consolidate my thoughts, and in case it is useful for others who are curious about technology.
First, what exactly is blockchain technology?
For this question, I found Wikipedia particularly helpful.
From this and other readings, I gather that blockchain is, essentially, a database. Each entry or record is called a “block”; and each block contains in it a hash which links it to the previous one, resulting in a chain of tokens that link each data entry to other ones (hence the name, blockchain). Moreover, each block is timestamped, so that we know exactly when it was created.
The ability to trace timestamped blocks through a chain makes it very difficult (though, not impossible) to change the data encoded in each block. For instance, in the chain depicted below, we could follow any of the blocks represented all the way back to its genesis (the green block).
This traceability is the main reason why this technology is deemed to offer a very secure record of activities (for instance, transactions). Moreover, these chains of blocks are typically (though, not exclusively) managed in public, peer-to-peer networks, ensuring that the activities are recorded in multiple places. The existence of a public, distributed ledger further increases the difficulty of altering the information recorded.
What is the use of blockchain in marketing?
Enter “Blockchain and Marketing” on Google, and you get a lot of results (well, about 267,000,000, to be precise). I.e., there is a lot of information to digest!
Here, I found two articles particularly helpful.
The article “How Blockchain Technology Can Benefit Marketing: Six Pending Research Areas”, by Abderahman Rejeb, John G. Keogh, and Horst Treiblmaier, published in the open access journal Frontiers in Blockchain, identifies the following uses:
In turn, the conference paper “Blockchain Applications in Marketing”, by Ioannis Antoniadis, Stamatis Kontsas and Konstantinos Spinthiropoulos, flags the uses below:
So, what are the key issues emerging, for research and practice?
With so much being written about blockchain’s applications in marketing (or business, more generally), it is unsurprising to see that opinions about its long-term impact vary widely. Sources tend to agree that blockchain technology has many, potential use cases. However, many authors caution that the materialisation of these benefits may be compromised by the following issues:
- Lack of interoperability between blockchain systems – for instance, discussed in this paper by Belchior et al (2020)
- High energy demands of peer-to-peer validation networks- for instance, discussed in this paper by Carter (2021).
- Lack of governance structures – for instance, discuss in this paper by Beck et al (2018).
Regarding the issue of governance, I would like to flag the paper “Governance and control in distributed ledgers: Understanding the challenges facing blockchain technology in financial services” by Markos Zachariadis, Garrick Hileman and Susan Scott, published in Information & Organization. There is an open access version, here.
The paper is NOT focused on marketing. But, in my view, the issues identified are relevant for the use of blockchain technology in marketing, too.
The authors define corporate governance as the mechanisms that support accountability and stakeholder rights in an organization, and clarify who makes what decisions; and, therefore, enable an organisation to engage in complex interactions with others. They, then, analyse the design of blockchain platforms from the perspective of governance, focusing on three aspects:
- The allocation and partitioning of decision rights on the platform
- The control mechanisms (informal or formal) that platform owners use to ensure desired behaviours
- The incentive structures put in place to influence behaviour
Based on this analysis, Zachariadis and his co-authors identify the following range of critical issues:
Table 1 – A summary of critical issues and the further research questions that they pose
|Critical issues||Public blockchain platforms||Further research questions|
|Scalability||Limited relative scalability in terms of transaction capacity.‘Permissionless’ ledgers have struggled to address scalability issues due to lack of consensus and governance structures. This may be due to varied interests and incentives of the different actors in their ecosystem but also due to lack of resources to meaningfully take part in the dialogue through proposals.“Infinite” scalability in terms of architecture and operational capability, albeit limited by its transactional protocol.||– How is scalability affecting the effectiveness of blockchain technologies in finance?- Can these issues be dealt with through better governance and control of blockchain infrastructures?- Who should be making these decisions and what would be the role of financial regulatory bodies?- Which governance framework would be more effective in encouraging consensus?|
|Openness||Public blockchains such as Ethereum and Bitcoin are inherently open.Anyone is able to access their networks by installing a wallet and purchase digital tokens from public exchanges (or other means). They are also open-source and accessible to anyone who was interested in participating in the development process.Issues around use of public blockchains for illicit activity.||– Does the inherent openness of public blockchains make them unfit to function as payment infrastructures?- How can KYC processes be utilised in this context?- What could be the role of financial institutions such as banks in the blockchain economy?- Can a digital identity framework be established to give legitimacy to transactions?|
|Interoperability and standards||Dependent upon voluntary Internet standards groups and proprietary standards initiatives.Coordination and collaboration required.Several consortia can lead to multiple standards and protocols.Further investment and tools for interoperability are required.||– How can the blockchain community bypass issues around the lack of interoperability between blockchain platforms?- What would be the role of standards in this process and who should develop these?|
|Liability and resilience||Distinctive underlying technology with zero downtime relying on sophisticated consensus mechanism.Value never leaves.Issues of dark web use and ‘tainted coins’.Compensating record can be added (if permissions mechanisms allow).Dispute resolution options exist but resolution can be slow or effectively impossible. Operational risks are reduced and high levels of capital efficiency are achievable but other kinds of complexity enter the system.||– How can the resilience of blockchain platforms be leveraged to make financial transactions more efficient?- Is immutability a desirable property, and how can this be reversed in case of a fraudulent transaction (e.g. due to illegitimate access)?- How can platforms ensure consensus (and therefore continuous operation) when there is decreasing alignment of incentives?|
|Transparency and privacy||Ethereum and Bitcoin are pseudo-anonymous which means that real identities are not required to use either system (users are represented by particular alphanumerical addresses).The blockchain is publicly open and hence all transactions are visible which makes it easy to audit. However, there are many challenging cases where privacy is of major concern.||– How can transparency be leveraged when transactions are meant to be private? -Can a privacy balance be struck with blockchains?|
|Security||Response/coordination are voluntary and based on capacity from a community of users. Violating the principle of immutability opens the door to entirely new risks.Reputation and credibility.||– How should code “bugs” identified by security researchers be responsibly disclosed to public blockchain communities, particularly ones with billions of financial value at risk due to irresponsible bug disclosure|
What other good, introductory sources, you would recommend, on the relevance and implications of blockchain for marketing?