Introduction
Digital innovation has revolutionized multiple sectors over the past few years. At the heart of this digital transformation lies blockchain, a natively digital and decentralized technology that promises to change the way we conceive and use digital information. This article will explore the key points of the relationship between digital innovation and blockchain, highlighting how this emerging technology is redefining numerous aspects of our society through decentralization.
Innovation has always been the way businesses can stay competitive and remain in the market. Considering the famous S-curve that identifies the adoption stage of an innovation, we soon realize that we are still at the early stages of the curve, in a phase still risky and uncertain. However, even in this phase, there are several architectures proposed in the market that aspire to become the dominant design. For this reason, I will use innovation categories to understand how blockchain is being used to innovate.
How to associate current uses of blockchain with innovation categories?
The first category I propose is innovating the product compared to innovating the process with blockchain. That is, adapting the product features to what is required by the market to obtain greater revenues, or innovating the production process to achieve cost efficiency. Both aim to ultimately increase profits that allow the company’s economic sustainability. For example, blockchain has the potential to save financial institutions about $10 billion in cross-border payment costs by 2030, according to a recent report. Innovating the process can create efficiencies that reduce costs, allowing for higher profits. Incorporating blockchain-based solutions can help increase a company’s revenue by improving existing products and unlocking innovative offerings that further reach a wider audience. This is the case with tokenization: the process of converting something of value (real estate, a stock portfolio, or artwork) into a digital token that can be transferred on the blockchain. This can provide additional income opportunities for businesses. For example, real estate tokenization allows investors to own fractional units of a particular property and demonstrate ownership, transfer, and registration of ownership rights via the blockchain.
This last example allows me to connect to the definition of another way of innovating and how technology can radically change products and services. I speak of the opposition between incremental or radical innovation.
Radical innovation involves creating something completely new or revolutionary, breaking with the past, and introducing significant changes in how something is done or perceived. In contrast, incremental innovation involves gradual or revolutionary improvements to what already exists, optimizing existing processes or functionalities without revolutionary changes. A case of adopting blockchain technology can streamline workflows from the outset, and its limited manual interaction helps reduce human error. For example, JPMorgan Chase is experimenting with the use of blockchain for Collateral Settlement, introducing its own Tokenized Collateral Network (TCN). These more efficient internal flows are expected to result in cost savings. On the other hand, staying in the financial sector, especially in view of radical innovation, I consider the development of programmable coins as particularly important.
The previous categories referred to any type of innovation, let’s now divide digital innovation.
What synergies between digital innovation and blockchain technology?
The previous categorizations were valid for any innovation, but blockchain, being natively digital, presents 3 additional distinct forms that are typical of digital innovation: disruption, competition, and erosion.
Digital disruption can completely destroy companies dependent on obsolete products. Usually, in this type of innovation, the reason why consumers purchase the offered service changes. For many, blockchain will have a disruptive effect on the financial world. Since usually to have a disruptive innovation the initial target is represented by the low-end market, I don’t feel confident enough to declare this use case as already disruptive: the effects are yet to be seen. I will therefore talk about blockchain-based games: Games that leverage blockchain features are transforming the gaming industry. They allow players to truly own virtual items and game resources, thanks to the use of non-fungible tokens (NFTs) on the blockchain. These games enable greater ownership and control of gaming elements, opening up new monetization opportunities for players.
Digital competition where the digital company competes with incumbent operators by creating value and stealing it from existing players. Blockchain-based food traceability and supply chain: In the food sector, blockchain-based services are emerging to compete with traditional traceability systems. They allow consumers to verify the origin and quality of food, creating greater trust and transparency along the entire supply chain.
Digital erosion increases the digital content of existing products. No direct competition with historical operators. Changes in the profit distribution among supply chain actors. In the long run, historical operators are left with back-end support services. I consider a valid example that could materialize to explain this category is represented by traditional data security versus blockchain storage: Traditional data storage and management services may be vulnerable to security breaches and data loss. Blockchain storage services offer greater cryptographic security and control to users, allowing them to securely store documents, files, and sensitive information without relying on a single centralized server. In all three forms, companies must adapt to survive in this new digital context.
Sources and approaches to innovation management
At this point, it is important to declare that innovation arises from different sources.
Sometimes it is driven by market needs and requirements, other times it is pushed into the market by an emerging technology. The next two paragraphs will show use cases that demonstrate different processes leading to innovation, which we define as market pull and technology push. Among the challenges that companies now and in the future must fulfill, in a world where data is considered the new oil, are the security and privacy of our data, which are increasingly valuable to businesses but without remuneration for us. But also greater social inclusion and certainly environmental sustainability.
Blockchain technology can represent the answer to numerous challenges that digital innovation faces to ensure greater efficiency and productivity, ultimately a better and less alienating life for women and men.
The “Market pull” approach to innovation focuses on the user (outside-in), identifying and responding to a latent market need or creating a precise product explicitly requested by the market.
As previously announced, cybersecurity is a challenge and a necessity demanded by every consumer. Blockchain can provide a secure and immutable record of activities, helping to detect and prevent data breaches. Additionally, the decentralized architecture of blockchain can make it more difficult for hackers to attack a single point of control.
Another increasingly demanded aspect of the market is digital inclusion.
Access to blockchain only requires an internet connection, allowing people to participate in financial services, digital identity, and other digital activities without traditional intermediaries. Filling out long and tedious forms to access a website or make a purchase is a common problem in the Web2 world. However, Web3 offers a solution through peer-to-peer (P2P) connections, which are replacing the traditional 0Auth-based authentication system. P2P connections are crucial in the context of Web3 and promise a radical breakthrough, allowing companies, especially brands, to disintermediate and establish authentic loyalty bonds with users. This authentication method is seen as a form of authentic loyalty, allowing for a direct relationship with the user without intermediaries compromising control and data.
As a last case of strong necessity, we find the increase in misinformation and fake news: blockchain is used to track and verify the origin of information, helping to reduce the spread of false or manipulated news.
Conversely, technological innovation defined as “push” is the result of a process driven by scientific or technological skills and aims to improve the capabilities and technological skills of an existing technology.
It exploits and adds to the product some peculiarities that it did not have before, taken from an emerging technological trend or existing ones. To tell about this type of innovation, I describe a category of cryptographic techniques and protocols used to prove the truth of a certain statement without revealing the actual information itself on the blockchain, namely ZK or zero-knowledge protocols.
ZK-proofs could be used to prove that an entity has passed an identity verification without revealing the actual information, allowing secure and anonymous access to online services.
Not only that, ZK-proofs could ensure that transactions recorded on a blockchain are authentic and unaltered, without revealing the specific details of the transactions themselves. Data privacy: Blockchain can allow users to control their own information and only grant access to authorized individuals through mechanisms like private keys. ZK-proofs could be used to share only necessary information without revealing full details. In the future, ZK technology could be pushed further to achieve ethical artificial intelligence: ZK-proofs could be used to demonstrate that an artificial intelligence model is adhering to certain ethical principles without revealing the entire training process.
The theory of cyclical innovation in relation to the famous failed projects in recent years
Theories on innovation finally explain those cases that, unfortunately, undermine the credibility of the sector with fraudulent projects and, contrary to the ideals of decentralization and transparency, hide desires for short-term profits at all costs and do not bring value to the ecosystem. Every innovation has its downside of speculation, scam projects that can be explained by the fluid phase cycles of product innovation. In a context of very high product innovation rates in the blockchain sector, numerous projects emerge that, at first glance, promise revolutions and exceptional returns. However, behind the enthusiasm and the promise of quick profits often lies a dark and deceptive reality.
The fluidity phases in product innovation allow various companies to present different architectures on the market, each trying to establish itself as the dominant design. In this competitive noise, some unscrupulous operators exploit the general enthusiasm to gain advantage unfairly. Scam projects infiltrate the landscape, attracting investors with false promises and mirages of quick success.
These projects not only harm investors but also undermine the credibility and legitimacy of innovation itself. It is essential that the blockchain community and regulatory authorities collaborate to establish clear regulations and responsibilities in the cryptocurrency environment. Only through careful supervision and widespread awareness will it be possible to mitigate the risk of scam projects and preserve the integrity of a sector destined to revolutionize the way we conceive and manage financial transactions.
Conclusions
In conclusion, analyzing innovation in a technological sector requires careful evaluation of the presence of dominant designs or the fluid phase in which various solutions compete in the market. The emergence of a Dominant Design, as in the case of smart contracts on the Ethereum blockchain, is influenced by key drivers such as complementary activities, strategic maneuvers, understanding of customer needs, rules, and laws. Complementary activities provide the necessary resources for marketing and promoting innovation, while strategic maneuvers guide decisions that lead to success. Deep understanding of customer needs is crucial for the development of satisfying solutions. Rules and laws, meanwhile, influence the development and adoption of standards.
In the context of smart contracts, Ethereum emerges as the dominant design, representing the platform on which most cases will develop. However, it is important to emphasize that few technological factors can boast of being the dominant design already, and the fluid nature of innovation requires constant monitoring to adapt to market developments. In this scenario, the blockchain community must work together to ensure the legitimacy and integrity of emerging technologies, while rejecting scam projects that threaten investor confidence and sustainable growth in the sector.
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