While the technology is radically different the underlying principles are the same. Verifiable “Conditions of Satisfaction” or “Trust” are essential then and now.
Ronald Coase determined, in the “The nature of the firm” that businesses exist to reduce the transaction costs. In the 1980’s and 90’s “Business Process Re-engineering” supplemented with “Automated Workflow” delivered cost reductions by saving time. Fast forward to the age of distributed blockchain and the headlines read “Bank’s project a cost saving of millions of dollars by incorporating blockchain” or something like that.
Automated workflow (smart contracts are after all a set of rules) is one of the main features that make blockchains attractive. So what is the difference between Workflow of the 80’s and 90’s and Blockchain? Prior to the blockchain, the ROI associated with building workflow systems between organizations was not worth the effort, the savings related to reduced transaction costs did not outweigh the costs of development and maintenance. Regulatory issues were insurmountable, additionally, client-server workflow systems with few exceptions did not include payment rails.
Not so Smart Contracts (1990 WorldPartners)
My company designed intra-enterprise automated workflow using the available technologies in the 80’s and 90’s. The strongest tools for doing so at that time was Lotus Notes later dubbed Lotus Notes/Domino, a client-server architecture that accommodated data synchronization across nodes (clients and servers). Additionally, Lotus Development Corporation introduced LotusScript that allowed developers to build rules and triggers, enabling complex enterprise workflow. Ahead of its time, many of these systems are still in use today.
What did Ronald Coase Overlook
Matt Ridley points out in his book “The Rational Optimist” how transactions contribute to innovation in human society and organizations.
When new rules and payment rails merge as they do in blockchains, efficiencies are compounded but also encoded and obscured from those who might bring about the next big innovation. The balance between efficiency that drives day-to-day profitability and creativity that provides orders of magnitude profitability needs careful cultivation.
Distributed Consensus without a central authority
The blockchain is essentially about trust networks. Language As Action methodology is a means of identifying the trust in the coordination of a network of activities that comprise trade. As one would diagram a sentence for grammatical purposes a conversation can be diagrammed for the purpose of making explicit the trust agreements between multiple parties. This customer-centric methodology for building a closed loop workflow comes from work based on Terry Winograd and Fernando Flores early pioneers of Expert Systems and Workflow. Flores produced one of the first Mainframe workflow systems in 1986. (“The Coordinator” was not a smashing success, it got nick-named Nazi-ware. However, the underlying principles around which it was based have been adopted by numerous companies and incorporated into their workflow engines. )
Flores also went on to provide consulting services for senior management based on his newer book “Building Trust”, interestingly the Economist Magazine described blockchain as “Trust Networks”. Fernando has always been ahead of his time.
The Balancing Act
As Matt Ridley in his book points out that the trust which grows with market transactions is the basis of innovation, knowledge is collective, automating trust destroys corporate boundaries and improves efficiencies, but it also inhibits the unstructured yet critically important conversations that lead to innovation and new discoveries.
Workflow Types & Tools
The private blockchains are to business-to-business transactions in a workflow engine, while public blockchains are akin to the business-to-consumer workflow engine. It’s all about the level of trust between entities.
|Lotus Notes / Domino Workflow||Ethereum Blockchain|
|LotusScript Workflow Rules||Solidity Smart Contracts|
|Enterprise Distributed Servers||Globally Distributed Blockchains Nodes|
|Not Transaction Capable||Transaction Capable|
|Email routing||Whisper Network|
Workflow for the Globe
1990 WorldPartners was a workflow system for an organization known as “WorldPartners” a global telecommunications association lead by AT&T but not controlled by them Some of the players in this loose association included KDD, Singapore Telecom, Unisource, and AT&T. The rules of partners business (delivering long distance service) were carefully and dutifully documented.
Even with strong agreement on the rules of play the world partnership was still taking 20 days to get a quote into the hands of the customer. Leveraging technologies mentioned above we built a global system that would reduce the lead time from 20 days to 2 hours, peg the currency to a single standard, produce the contract to all parties in their native language.
Unfortunately for us, we did not have blockchain, scaling our 1990 infrastructure proved to be problematic, each organization had it’s own IT group which had its own rules about servers software and networking. The Internet as we know it today was just taking off and lacked the necessary security. The US was considering lifting the ban on encryption which had been classified as a weapon.
Rep. Greg Walden (R-Ore.) told Richard Smith Equifax CEO, “I don’t think we can pass a law that fixes stupid.” When tectonic shifts in technology impact business regulators need to wait until the dust settles before overreaching and ruining the party. Unfortunately understanding the technology and ramifications strikes fear in the hearts of regulators, not wanting to be caught off guard they tend to go “better safe than sorry”.
Blockchain suffers here from its association with Bitcoin.
Bitcoin Tipping Point
When the unbanked become more important than the 1%.
Established markets may not be where Bitcoin flourishes. The Unbanked of the world is not on the established bank’s radar. They could benefit tremendously from banking services. A question often posed by Andreas Antonopoulos to bankers is: What happens to your business when every 3rd world teenager is carrying around a bank in his back pocket?
Banks like the mantra “blockchain good bitcoin bad”, ultimately the technology behind Bitcoin and all the other blockchain system will achieve an easy plug and play integration. When efficient workflow links up with programmable money (Bitcoin) the established walls come tumbling down. Today’s establishment did not see the bitcoin innovation coming they most likely will not see this wave either.
Money is a store of value, a means of payment, and a unit of account, it is also a means of control. Once money can be understood as a means of control, bitcoin/blockchain can be understood as a means of revolution.