The Promise and Prospects of Blockchain-Based Decentralized Business Models

Abstract

The emergence of Bitcoin and its underlying blockchain technology have enabled novel solutions for creating, transacting, and validating digital assets. Inspired by these developments, a variety of project teams have been building blockchain-based “decentralized” business models (BDBM), marketplaces, and organizations. However, ambiguity and confusion exist around the meaning of “decentralized” in the context of blockchain technology-based business models in both research and practice. Moreover, the implications of BDBM’s mainstream adoption from a mass customers’ perspective are insufficiently understood. This article discusses and develops a two-dimensional framework explicating the notion of decentralization in BDBM. Based on this typology, the article analyzes the implications, prerequisites, and desirability of decentralization for BDBMs’ mainstream adoption.

More than a decade ago, blockchain technology emerged as the backbone of the cryptocurrency Bitcoin (Nakamoto, 2008). Shortly after the network’s initial implementation in 2009, Bitcoin already began to inspire a variety of different blockchain technology use cases across diverse industries, spanning from new cryptocurrencies (e.g., Litecoin) to novel business models in the financial, insurance, media, energy, and supply chain sectors, to name just a few examples (e.g., Dutra, Tumasjan, & Welpe, 2018). In the late 2010s, there was a worldwide hype around blockchain technology due to the (often exaggerated) promotion of different desirable characteristics, including catchwords such as transparency, immutability, security, automation, trustlessness, and decentralization (Tapscott & Tapscott, 2016; Tumasjan, 2021).

Indeed, one of blockchain technology’s central promises has been and continues to be the notion of “decentralization” (Hoffman, Ibáñez, & Simperl, 2020; Tumasjan, 2021; Walch, 2019). This promise originally stems from the Bitcoin developers’ goal to create a “purely peer-to-peer version of electronic cash” with which users could avoid “going through a financial institution,” as Satoshi Nakamoto (2008) explained in his Bitcoin whitepaper (Nakamoto, 2008, p. 1). Notably, Nakamoto (2008) makes no direct mention of “decentralization” (or related terms). Rather, the notion of decentralization has been perhaps most heavily popularized by Vitalik Buterin (2014a), the founder of Ethereum (i.e., the largest and most established general purpose blockchain platform). In his initial Ethereum whitepaper, titled “A Next-Generation Smart Contract and Decentralized Application Platform” (Buterin, 2014a), he lays out decentralized application ideas that stretch beyond a peer-to-peer currency, such as a decentralized file storage, online voting, marketplaces, and so-called decentralized autonomous organizations (DAOs; i.e., virtual organizations that are owned and governed by their members using blockchain technology for their administration)—all of which could be built on top of the Ethereum platform. This notion of decentralization is also embodied in his famous quote: “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly” (Vitalik Buterin, as cited in Tapscott & Tapscott, 2016, p. 34).

Hence, in the years that followed, decentralization has become one of the most often used catchwords in the blockchain discourse and inspired the development of a myriad of blockchain-based decentralized business models (BDBM) and applications (Schneck, Tumasjan, & Welpe, 2020; Tumasjan & Beutel, 2018). For instance, OpenBazaar offers a peer-to-peer marketplace as a blockchain-based alternative to services such as Ebay; Steemit offers a blockchain-based social media network as an alternative to services such as Facebook and Twitter; and Synthetix allows anyone to create and trade derivatives on assets (e.g., stocks) as a decentralized alternative to traditional banks. Likewise, cryptocurrency exchanges, wallet providers, and other cryptocurrency service providers (e.g., cryptocurrency index funds) have emerged offering a variety of nontraditional financial services around the management of blockchain-based digital assets. Moreover, large corporations have started to use blockchain-inspired distributed databases in company consortia (i.e., distributed ledger technologies, such as Hyperledger Fabric) with the goal of “decentralizing” power and control around data management and business processes (Kernahan, Bernskov, & Beck, 2021). In addition, these developments have been accompanied by a fast-growing body of research on BDBM and marketplaces (Hoffman et al., 2020) covering all imaginable industries, most prominently finance, healthcare, supply chain, and energy.

However, despite all these developments in the past decade and blockchain technology’s purportedly desirable characteristics, BDBM mainstream usage still seems far away, as BDBM remain a niche market in comparison to extant traditional, “centralized” digital business models (Schneck et al., 2020). Why has the mainstream adoption of BDBM not advanced further, despite the appeal of decentralization in a world dominated by heavily centralized and criticized institutions, such as banks and digital platforms (e.g., the GAFA: Google, Apple, Facebook, Amazon; Tumasjan, 2021)? Alongside often mentioned factors—such as major challenges of technical scalability, security, regulation, technology acceptance, and legitimacy (cf. controversial innovations; Delacour & Leca, 2016; Glückler, 2014)—a crucial factor concerns the regular customers’ perspective and their willingness to use BDBM (Tumasjan & Beutel, 2018). Although researchers have previously often mentioned the customers’ perspective as a barrier to mainstream adoption (e.g., Chen & Bellavitis, 2020), they have limited themselves to addressing BDBM’s usability and user friendliness. However, as this article will show, high levels of decentralization in BDBM require a substantial amount of cognitive effort from customers, demanding considerably higher levels of knowledge and expertise, self-reliance, and responsibility that developers cannot solve, or even trade off through, merely improving usability and user friendliness.

To analyze BDBM’s promise from a regular customers’ perspective, this analysis focuses, first, on the different meanings of the term decentralization and creates a typological framework to better understand the different projects and business models aimed at decentralizing. Second, the article derives and discusses decentralization’s implications for mainstream adoption of BDBM from a regular customer’s point of view. The chapter thereby contributes to our understanding of the relationship between knowledge and technology—the core aim of this book—by showing how decentralization requires the regular customer to demonstrate elevated levels of both knowledge and expertise.

Background: Blockchain Technology

Blockchain technology is data infrastructure with which users can share, synchronize, validate, and replicate digital data across a network that is spread over multiple entities (e.g., Risius & Spohrer, 2017). Blockchain technology relies on decentralized structures without the need for centralized maintenance or data storage (e.g., Friedlmaier, Tumasjan, & Welpe, 2018; Nguyen & Kim, 2018). Hence, its users can securely create, maintain, and validate any form of digital transaction without the need for a centralized intermediary or governance mechanism to establish trust among agents in the network (e.g., Casino, Dasaklis, & Patsakis, 2019; Meijer & Ubacht, 2018).

The currently most prominent use case is the cryptocurrency Bitcoin. The first application of blockchain technology, Bitcoin’s creator(s) launched the network in 2009 to create a global peer-to-peer electronic cash system secured by a distributed consensus-building mechanism (mining, i.e., providing decentralized actors with the computational power to store, validate, and maintain the network) by combining cryptographic hashing (Nadeem, 2018) and insights from game theory (Bonneau et al., 2015). By building a global peer-to-peer cash system, Bitcoin’s creator(s) aimed at cutting out intermediaries (e.g., central banks and commercial banks) in the financial sector and providing an electronic payment system for anyone (Nakamoto, 2008).

The second largest blockchain protocol in terms of market capitalization (Coinmarketcap, 2023), the Ethereum network, is a distributed computing platform and operating system for the application of so-called “decentralized applications” (dApps; i.e., digital applications directly connecting users of a decentralized network; cf. Wright & De Filippi, 2015) on top of a blockchain protocol. It was the first protocol to enable the application of so-called “smart contracts,” in other words, algorithms that automatically execute transactions when predetermined conditions occur, following a simple if-this-then-that logic. These smart contracts are the foundation for the creation of new applications such as DAOs or other non-financial applications that do not require their own novel protocols (cf. Buterin, 2014b).

Developers have proposed and piloted many other applications beyond cryptocurrencies, such as supply chain tracking and tracing and financial, healthcare data, identity, and energy management (Casino et al., 2019). In these cases, they have discarded the original public and open blockchain technology approach (e.g., Bitcoin and Ethereum) to instead propose and promote new “blockchain-inspired” solutions. These blockchain-inspired solutions often fall under the label of “distributed ledger technologies” (DLT; i.e., digital databases that are shared and synchronized across multiple instances, such as Hyperledger Fabric) and can be categorized as so-called “private-permissioned” blockchains.

Hence, a crucial difference in the broad field of blockchain technology today concerns public versus private on the one hand, and permissionless versus permissioned blockchains on the other hand, the combination of which results in a 2 × 2 matrix (Beck, Müller-Bloch, & King, 2018). In general, public blockchains are open to anyone who wishes to view and enter transactions, whereas private blockchains only permit such activity after registering with the network’s central administrator (Beck et al., 2018). Permissionless blockchains allow anyone to not only view and enter but also to validate transactions, whereas in permissioned blockchains validating is reserved to registered participants. In a public-permissionless blockchain (e.g., Bitcoin), anyone can fully participate in the network, in other words, they can view, enter, and validate transactions. In a public-permissioned blockchain (e.g., Sovrin), however, although anyone can view and enter transactions, only authorized participants can validate them. In private-permissioned blockchains (e.g., Hyperledger Fabric), only registered participants can view, enter, and validate transactions.

Importantly, the developers of almost all of these blockchain technology and blockchain technology-inspired solutions state and stress that they aim at decentralizing certain aspects of digital asset transactions. To what extent they actually do so, however, varies immensely, as will be shown in the Section “Different kinds of BDBM: Toward a typology” below. The following two sections review extant research on BDBM (Section “Extant research on BDBM”) and show the problematic use of the term decentralization in research and practice (Section “Understanding the Term “Decentralized” in BDBM”). To systematize and make transparent the different uses and meanings of decentralization in extant BDBM research and practice, the Section “Different kinds of BDBM: Toward a typology” develops a typological two-dimensional framework yielding four BDBM archetypes. Finally, the Section “Implications for BDBM types’ mainstream adoption from a customers’ perspective” derives the implications for the four BDBM types’ mainstream adoption from a customers’ perspective, before discussing (Section “Discussion”) and concluding (Section “Conclusion”) this analysis.

Extant Research on BDBM

Since as early as 2010, researchers have been conducting an emerging and increasingly growing stream of BDBM-related investigations. A literature search using a comprehensive range of keywords related to BDBM¹ in the fields “title,” “abstract,” and “keywords” in the bibliographic database Scopus yielded N = 967 publications, mostly in the subject areas of computer science (N = 757), engineering (N = 426), decision sciences (N = 242), mathematics (186), and business, management, and accounting (170).² To visualize the extant BDBM research landscape, the publications’ keywords were analyzed using the software VOSviewer (version 1.6.17; van Eck & Waltman, 2010). Specifically, the keywords were analyzed based on co-occurrence and the map was restricted to keywords that appeared at least 10 times, yielding a total of 90. The resulting research landscape is shown in Figure 11.1 below.

Fig. 11.1

BDBM research landscape based on publication keywords. Source: Design by author

As is to be expected, and evident from Figure 11.1, the notion of decentralization indeed occupies a central role in the extant BDBM publications. In fact, decentralization (including related keywords, such as “decentralized system” and “decentralized management”) is the third most mentioned keyword (the first two being “blockchain” and “smart contract”). Six clusters emerge from the present analysis, as shown in Figure 11.1. Cluster 1 (23 keywords) mainly contains research about BDBM in the context of enterprise applications in different industries, comprising keywords such as “distributed ledger technology” (DLT), “supply chain,” “industry 4.0,” “healthcare,” “smart city,” “transparency,” and “digital transformation.” Cluster 2 (16 keywords) mainly contains research about BDBM in the energy sector, comprising keywords such as “decentralization,” “distributed energy,” “micro grid,” “power markets,” “peer to peer,” “renewable energy,” “electric power transmission,” “e-commerce,” and “cost effectiveness.” Cluster 3 (15 keywords) mainly contains research about BDBM in the context of cryptocurrencies, comprising keywords such as “bitcoin,” “cryptocurrency,” “electronic money,” “decentralized exchange,” “decentralized finance,” and “proof of work.” Cluster 4 (15 keywords) mainly contains research about BDBM in the context of data analytics and management, comprising keywords such as “cloud computing,” “distributed systems,” “data analytics,” “machine learning,” and “computation.” Cluster 5 (11 keywords) mainly contains research about BDBM in the context of data security and privacy, comprising keywords such as “access control,” “authentication scheme,” “cryptography,” and “security and privacy.” Cluster 6 (10 keywords) mainly contains research about BDBM and smart contracts, comprising keywords such as “smart contract,” “Ethereum,” “decentralized application,” “scalability,” and “automation.”

Overall, what is gleaned from this keyword analysis is that BDBM researchers have moved far beyond examining cryptocurrencies in general, and are examining BDBM in enterprise settings and a range of different industries. In terms of industries beyond financial services, there seems to be an emphasis on the energy sector, followed by healthcare and supply chains. Importantly, decentralization is close to the center of the research landscape with strong connections to all research clusters, while being closest to and part of Cluster 2, which is mostly related to energy-related keywords (see Fig. 11.2).

Fig. 11.2

Location and connections of the term decentralization. Source: Design by author

Understanding the Term “Decentralized” in BDBM

Although decentralization is one of the most frequently used terms in the blockchain technology discourse in both practice and research, many confusions and ambiguities about its meaning remain (Walch, 2019). This is primarily because most describers of blockchain technology in both practice and research publications do not properly define what they mean by the term, instead merely listing decentralization as a property of blockchain technology (Tumasjan, 2021). Moreover, the stated goal of decentralization also differs substantially across different applications and actors in the blockchain discourse. These meanings continue to range widely, stretching from implementing secured shared data management and transparency in the context of enterprise use (e.g., DLT in supply chain using IBM’s Hyperledger Fabric) to establishing cryptocurrencies with the aim of disintermediating or abolishing traditional financial and governmental institutions (e.g., Bitcoin), or even the state as a whole (Atzori, 2015). Whereas in the former cases of DLT decentralization happens within the framework of traditional hierarchical organizations and institutions, in the latter cases the term is used to describe new blockchain-based digital assets aimed at providing an alternative to traditional government currency and/or the incumbent financial system and/or established governmental institutions. Moreover, actors also use the term to describe non-hierarchical or cooperative forms of organizations or marketplaces, where anyone can connect to contribute to the organization via writing code, applications, voting, and/or using the services (e.g., DAOs). In these cases, decentralization is meant as an antidote to the power and organization of large corporate firms and digital platforms (e.g., digital platforms, such as the GAFA) toward establishing digital cooperatives (Kollmann, Hensellek, de Cruppe, & Sirges, 2020). Thus, a variety of different actors have been using (and continue to use) decentralization in the context of blockchain technology to describe completely different means and ends.

Unfortunately, scholars (including myself) have often neglected properly defining what is meant by the term “decentralization.” Even when they have spelled out a definition, the results have varied substantially (Hoffman et al., 2020). In their review, Hoffman et al. (2020) list the 16 most relevant publications with different meanings of decentralization.

In many cases, researchers have focused one aspect of decentralization (e.g., decentralized governance and disintermediation of incumbent institutions or technological-infrastructural distributedness of database nodes) or mixed the different meanings. For instance, Chen, Pereira, and Patel (2021) define decentralization as “the extent to which power and control in governance structures and decisions are allocated to developers and community members” (p. 13), referring to the governance dimension. Conflating both aspects, Chen and Bellavitis (2020, p. 2) contrast “centralized financial systems” with “decentralized financial systems”: In the former, “financial institutions are the key intermediaries mediating and controlling financial transactions,” whereas in the latter, “financial transactions are facilitated . . . by decentralized peer-to-peer networks” and “no single entity can accumulate sufficient monopoly power to monopolize the network and exclude others from participating.” Thus, in this view, both the governance and the technological-infrastructural aspects are combined. In contrast, there exists a large body of work on DLT in practice and research, whose authors have focused less on the governance aspect and more on the technical side of decentralization (i.e., distributed data structures). For instance, numerous researchers have dealt with the decentralization of data management in healthcare (e.g., De Aguiar, Faiçal, Krishnamachari, & Ueyama, 2020), energy (e.g., Ante, Steinmetz, & Fiedler, 2021), and automobile (e.g., Fraga-Lamas & Fernández-Caramés, 2019) industries with a focus on decentralized ways of data management rather than the disintermediation of powerful incumbent institutions.

In sum, the blockchain discourse in both research and practice continues to harbor considerable ambiguity and confusion around the term decentralization. This state has been creating misunderstandings not only in the industry and scientific discourse but also among the general public about the possibilities and goals of decentralization based on blockchain technology. As a result, some have suggested dropping the term altogether due to its fuzziness (Walch, 2019). To make sense of the different meanings of decentralization in BDBM and to derive the implications of decentralization for BDBM mainstream adoption, the following section will develop a typological framework characterizing the extent of actual and desired decentralization in BDBM.

Different Kinds of BDBM: Toward a Typology

To further examine the phenomenon of, and research into, BDBM requires an understanding of its two underlying terms beyond “blockchain,” namely “business model” and “decentralized.” Although business model has a variety of definitions, most researchers agree that business models can be defined as schemes that describe (at least) the who (customer group), what (value proposition), how (firm activities), and value capture (how money is made) dimensions of a business (Gassmann, Frankenberger, & Csik, 2014; Massa, Tucci, & Afuah, 2017). Thus, the present article uses this broad business model definition to describe the notion of BDBM.

To disentangle the different meanings of “decentralization” in BDBM, this analysis builds on the two dimensions identified by Walch (2019). Specifically, Walch (2019, p. 41) pinpoints two meanings of decentralization in the context of the blockchain discourse, namely “resilient” (i.e., technical dimension: no single point of failure due to distributed nodes) and “free from the exercise of concentrated power” (i.e., governance dimension: no single entity exerts ultimate power due to distributed decision rights).

Building on Walch (2019), this article develops a framework with two dimensions to characterize extant BDBM: (1) infrastructural distributedness (i.e., technical dimension of decentralization) and (2) institutional disintermediation (i.e., governance dimension of decentralization). The first dimension, infrastructural distributedness, refers to decentralization focused on the technical infrastructure. This focus includes characteristics such as distributed nodes, data sharing, and transparent data management. The second dimension, institutional disintermediation, refers to decentralization focused on the concentrated decision rights of powerful institutions. This focus includes characteristics such as the disintermediation of incumbent powerful corporations and/or governmental institutions and replacing them through virtual communities with collective voting for decision-making and joint ownership (e.g., digital cooperatives).

As evident, decentralization lies on a continuum on both dimensions, as the actual extent to which it is aimed at varies considerably between different applications and projects. Thus, the framework aims at including the entire bandwidth of decentralization ambitions. For instance, one could argue that creating a shared data management system for healthcare records comprises lower levels of decentralization ambitions than creating a purely peer-to-peer network for energy trading. Similarly, establishing cryptocurrency exchanges and wallet services also entails lower levels of decentralization ambitions than aiming at circumventing centralized services altogether and instead making transactions only in a peer-to-peer fashion using cryptocurrencies. Moreover, the decentralization extent of blockchain projects is not static but may change over time (Beck et al., 2018). For instance, developers intentionally centralized the blockchain-based peer-to-peer sharing economy project Swarm City’s decision rights from the start to set up a productive application with the aim of decentralizing governance over time (Beck et al., 2018).

The two decentralization dimensions can be seen as independent from each other. Combining both dimensions yields a two-by-two matrix with four quadrants and four BDBM archetypes (see Fig. 11.3). The following paragraphs characterize the framework and the four resulting quadrants. In all instances, as of today, the financial sector applications are most advanced, whereas non-financial applications generally lag behind.

Fig. 11.3

Typology of BDBM. Source: Design by author

Quadrant 1: BDBM-T1

This quadrant comprises BDBM projects that have a strong focus on both infrastructural and institutional decentralization. The main goal is to disintermediate incumbent powerful state institutions, the financial system, and/or firms by means of building a decentralized, and, thus, resilient network structure and by establishing decentralized governance. Examples include Bitcoin, Ethereum, and Decentralized Finance (DeFi) applications—such as Uniswap as well as decentralized marketplaces, such as OpenBazaar. However, the scope and targets of institutional decentralization differ tremendously between projects and participants. For instance, proponents of Bitcoin as the only required cryptocurrency (so called “Bitcoin maximalists”) focus on establishing it as the sole digital financial asset and as an alternative to fiat money, and, hence, traditional financial institutions. Whereas Bitcoin maximalists view Bitcoin as the sole necessary worldwide digital asset and favor abolishing fiat money institutions (e.g., central and commercial banks), they do not favor community-owned DAOs (which are mainly built on the basis of other cryptographic tokens or currencies, so called “altcoins”). On the other hand, most projects in the field of DeFi (DeFi; Schär, 2021) focus on building a more efficient and inclusive financial system by “replicat[ing] existing financial services in a more open and transparent way” (p. 153), mostly using Ethereum and Ethereum-based tokens (i.e., altcoins). Thus, DeFi goes beyond “merely” establishing a cryptocurrency or digital asset toward building a new financial services system independent of incumbent institutions. Moreover, there are also many non-financial projects where the focus is on building community-owned and fully democratically governed organizations (e.g., DAOs built in the frameworks of Aragon or DAOstack). Whereas financial management is always a component (e.g., to pay for efforts or vote according to tokens owned; Hülsemann & Tumasjan, 2019), in contrast to most DeFi applications, these project developers mainly focus on realizing goals in a fully open, transparent, democratic, and community-driven way without the involvement of traditional state and legal institutions. Whereas the latter is not necessarily the focus of DeFi applications, there are, of course, overlapping projects focusing on both goals.

Quadrant 2: BDBM-T2

This quadrant comprises BDBM projects that have a low focus on infrastructural and a high focus on institutional decentralization. The main goal of these BDBM projects is to provide blockchain-based products and services as an alternative to traditional centralized products and services to disintermediate incumbent institutions. Extant company examples include centralized exchanges (e.g., Coinbase), wallet providers (e.g., Trezor), and cryptocurrency investment funds (e.g., Grayscale). In these BDBM, the focus is on helping customers using alternative means of digital asset transactions, thereby disintermediating existing centralized financial products and services (a high focus on institutional decentralization). However, these companies do not focus on building decentralized peer-to-peer networks (a low focus on infrastructural decentralization), instead mostly using centralized infrastructure (e.g., Coinbase storing digital assets on centralized servers). These BDBM can be seen as an interface connecting traditional financial services to blockchain-based digital assets. They are accordingly often considered as an entry gate to using digital assets.

Quadrant 3: BDBM-T3

This quadrant comprises BDBM projects and applications that have a high focus on infrastructural and a low focus on institutional decentralization. The main goal of these BDBM is to provide decentralized (in the sense of distributed and transparent) network infrastructures to improve shared business processes (e.g., shared data management and product tracking) but not to disintermediate incumbent government and financial institutions and large corporate firms. Extant examples are providers of enterprise and government DLT solutions (e.g., Hyperledger Fabric, R3, Enterprise Ethereum). The main idea of these BDBM is to gain efficiencies within a business network of trusted partners where data-based business processes are stored, shared, and worked on in a decentralized, transparent, and cryptographically secure way. In these cases, the term decentralized comprises data distributedness and equal transparency and/or decision rights by all registered partners involved, and serves as a juxtaposition to a centralized “black box” data management solution controlled by one provider.

Quadrant 4: BDBM-T4

This quadrant comprises BDBM projects that have a low focus on both infrastructural and institutional decentralization. The main purpose of these BDBM is to use blockchain technology and/or DLT inspired systems to build centralized data systems with a high level of security (e.g., cryptographic) and the possibility of programmability (e.g., smart contracts). Extant examples include central bank digital currencies (CBDC) being discussed and piloted worldwide. Importantly, CBDC projects do not aim at decentralizing at all. Thus, although these applications may be inspired by blockchain technology, they are not aimed at building decentralized infrastructure or institutions, but at building centrally controlled shared ledgers connecting central banks with commercial banks, market makers, and large corporations (Consensys, n.d.). Moreover, developers can implement Ethereum-inspired smart contracts to automate processes and ensure compliance with predefined if-then-rules (Consensys, n.d.). Thus, although blockchain technology may constitute the basis or the inspiration for BDBM-T4, “sharedness” rather than decentralization is the goal of these projects. As a result, despite their origin and/or inspiration may be stemming from blockchain technology, BDBM-T4 may not be considered decentralized business models in the sense of the initial blockchain technology idea.

Implications for BDBM Types’ Mainstream Adoption from a Customers’ Perspective

As evident from the analysis of the BDBM typology, the goals and extent of decentralization vary considerably across the four types. Thus, decentralization as a hallmark of BDBM does not adequately capture the variety of meanings that the term has across different BDBM implementations. Moreover, the decentralization discourse has been mainly led from a developers’ and content creators’ point of view (i.e., for whom decentralization in terms of the independence from incumbent digital platforms and powerful institutions is advantageous in many respects) rather than from the regular customers’ point of view (i.e., for whom this sort of decentralization creates a clear trade-off between self-sovereignty and additional cognitive efforts in terms of attitudes, learning, and accountability), which may at least partly explain the mostly positive viewpoint of decentralization in the extant blockchain technology discourse.

This terminological ambiguity thus has consequences for BDBM mainstream adoption because it entails clear trade-offs (i.e., self-sovereignty vs. duties and responsibilities). Plainly, BDBM-T1 feature the highest barriers for mainstream adoption, followed by BDBM-T2 and BDBM-T3, then BDBM-T4. However, whereas BDBM-T2 may be seen as a (temporary) gateway toward BDBM-T1, BDBM-T3 and BDBM-T4 clearly are not decentralized in the initial sense and goals of blockchain technology (i.e., Bitcoin). Moreover, several BDBM-T1 also go beyond the initial level of decentralization Bitcoin represents, for example, building democratically governed and participant-owned cooperatives based on tokens (e.g., DAOs) or abolishing state governance altogether (Atzori, 2015).

The following paragraphs therefore analyze the prospects of mainstream adoption for the four BDBM types. The analysis concentrates on the regular customer’s perspective, putting less emphasis on other important challenges, such as scalability, security, privacy, and regulatory issues, that previous researchers have extensively covered. To address the customer’s perspective, the present analysis focuses on necessary paradigm shifts and efforts in the cognitive domain, such as attitudes, learning and competence, and responsibility and accountability. Table 11.1 summarizes the extent to which attitudinal and behavioral paradigm shifts are necessary for each of the four BDBM types.

Table 11.1 Overview of the extent of shifts needed for mainstream adoption of the four BDBM types

BDBM-T1

As outlined above, the challenges and barriers for this type are the highest across the four types because its mainstream adoption requires fundamental paradigm shifts in customer behavior. Whereas higher levels of decentralization imply diverse changes for software developers and content creators, from a customer perspective, higher levels of decentralization imply a profound paradigm shift across multiple dimensions. The following paragraphs discuss the major factors of BDBM-T1 mainstream adoption from a customer-centric perspective.

Attitude Shift

Whereas high levels of decentralization may be desirable from software developers’ and content creators’ point of view—mainly because, unlike if playing by the rules of centralized platforms, they can maintain long-term full control over their product or service (Dixon, 2018)—customers may not find such decentralization equally appealing. The authors of extant research have often mentioned BDBM-T1’s high levels of technological complexity and low levels of usability (e.g., running a Bitcoin node or trading cryptocurrencies using decentralized exchanges, such as Uniswap), which is certainly an important barrier to mainstream adoption (Chen & Bellavitis, 2020; Tumasjan & Beutel, 2018). However, in addition to high levels of usability, using decentralized applications must come with a clear customer value-add. From the software developers’ and other creators’ point of view, this value-add may be the independence from a centralized platform provider that, over time, could change the rules of cooperation, censor certain applications, and extract higher rents from developers and creators (Dixon, 2018), who, however, feel impelled to stay on the platform due to sunk cost and lock-in effects. From the customers’ perspective, the overall user value has to be higher—and not just different—than what centralized providers offer with high levels of customer service. Using completely decentralized peer-to-peer services is, for the vast majority of customers, not an end in itself. For instance, using decentralized insurance products (e.g., Etherisc) effectively requires customers to gain an in-depth understanding of their economic and technological mechanisms. Thus, they would need to shift their mindsets toward highly valuing autonomy, privacy, full control over their own data, freedom from large institutions, and similar factors as intrinsic benefits. Given similar levels of usability and cost, customers would therefore have to value self-sovereignty and decision freedom as ends in themselves to prefer BDBM-T1 over traditional centralized solutions with high levels of support and customer service. This increased intrinsic value of self-sovereignty and decision freedom often goes hand in hand with decreased levels of trust in traditional centralized institutions (e.g., libertarian or similar political views; Lichti & Tumasjan, 2023).

Learning and Competence Shift

Increased decentralization in BDBM-T1 requires customers to increase a range of competences, be it in the field of IT and/or the respective product/service domain (e.g., finance). For instance, whereas in the traditional financial system bank counselors advise customers on how to invest their financial assets, make transactions, and close a financing deal, a BDBM-T1 (e.g., DeFi applications for depositing or lending cryptocurrencies, such as Aave) requires customers to complete these tasks entirely by themselves. Thus, customers need to not only invest additional time and be interested in building the requisite expertise, but must also have the respective education and ability to do so. Of course, financial and other counselors could also emerge for BDBM-T1, but their involvement may lower the levels of decentralization due to the required trust in, and reliance on, their advice for customers’ decision-making.

Responsibility and Accountability Shift

Customers have to take on accountability and responsibility if transactions go wrong. Transaction problems can range from technical difficulties and honest human errors to outright fraud. Without central entities providing safety and legal support in this regard, customers need to be willing to take on these risks on their own. Although special insurances for blockchain-based products/services (e.g., crypto wallet insurances) may mitigate these risks, they create additional cost and time investment. If Bitcoin is sent to a wrong address, for example, the transaction cannot be undone.

BDBM-T2

The challenges for the mainstream adoption of BDBM-T2 are less pronounced than those for BDBM-T1, as BDBM-T2 are tailored toward customers who want to engage with new types of digital assets (e.g., cryptocurrency or non-fungible token [NFT] trading and investing) but want to do so through a trusted centralized infrastructure. Prominent examples are Coinbase (trading and managing crypto assets) and Opensea (trading and managing NFTs). Although BDBM-T2 allow users to engage in nontraditional assets independent of extant centralized institutions (e.g., fiat currency products), they do so in a rather traditional way that comprises high usability, security, and accountability. For instance, Coinbase acts as a centralized wallet provider storing customers’ cryptocurrencies. Thus, the entry barrier, overall, is lower than for BDBM-T1.

Attitude Shift

To engage in BDBM-T2, customers will need to see value in owning and transacting new digital assets (e.g., cryptocurrencies), thereby acting outside the traditional financial system and its products and services. Thus, similar to BDBM-T1, BDBM-T2 need to offer a clear value-add over and above traditional financial services and products. For instance, in a low interest rate phase, new digital assets could be seen as providing a potentially more profitable alternative. Moreover, in countries with unstable financial systems and/or for individuals with limited access to traditional banking services (“unbanked individuals”), using BDBM-T2 offers a clear value proposition. In contexts with stable and accessible banking systems, BDBM-T2 may likely pass through a typical diffusion of innovation cycle (Rogers, 1962). Finally, speculation and trading are, at least today, central affordances of BDBM-T2 that need to be valued as a desirable goal in itself. For instance, Coinbase offers customers the exchange and custody of cryptocurrencies in a centralized manner, i.e., although customers invest in cryptocurrencies (e.g., Bitcoin), the usability and services are similar to established centralized institutions, such as banks or centralized digital platforms (e.g., Facebook).

Learning and Competence Shift

Most BDBM-T2 are designed to facilitate the onboarding and support of new customers (e.g., centralized exchanges), very similarly to incumbent digital platforms (e.g., GAFA). Thus, from a usability point of view, users face almost no challenges beyond those inherent to all traditional digital business models (e.g., Coinbase and Binance). However, they have to gain knowledge about the digital assets themselves (e.g., cryptocurrencies and cryptocurrency-based index funds), or at least find advice to make an informed investment decision. As many of these assets are complicated to study and understand their characteristics, there is a comparatively large knowledge and competence gap that needs to be bridged. Moreover, in the case of personal cryptocurrency key storage (e.g., self-custody in cold wallets), users need to gain additional competences for dealing with new devices and software, which, however, is in most cases optimized for customer onboarding.

Responsibility and Accountability Shift

As, in BDBM-T2, companies with a centralized infrastructure facilitate customers’ transactions (e.g., Coinbase and Binance), customers face almost no increased responsibility or accountability in comparison to traditional digital business models (e.g., in the case of centralized exchanges). However, for self-custody key storage wallets (e.g., self-custody in cold wallets), users need to take over responsibility for safeguarding their own assets and can make no replacement claims in cases of loss.

BDBM-T3

The challenges for the mainstream adoption of BDBM-T3 mostly concern changes for incumbent companies reengineering their extant IT infrastructure and processes toward DLT-based solutions (e.g., Hyperledger Fabric). Thus, the initial changes fall on the incumbent companies rather than on end customers. For instance, to enable blockchain-based supply chain tracking, peer-to-peer electricity trading, and shared digital health records, incumbent companies need to change their legacy IT systems and business models. If incumbent companies continue to offer their products and services in a traditional way but, due to the blockchain-based infrastructure, with improvements in efficiency, transparency, and further value from the customers’ point of view, mainstream adoption requires little changes on the regular end customers’ side.

Attitude Shift

For incumbent companies, there may be an increased attitude shift toward more coordination and cooperation when working in blockchain-based firm consortia, such as Corda (e.g., to enable more efficient data sharing). Moreover, when establishing public-permissioned blockchain solutions, companies need to substantially alter their attitude toward more transparency and openness to the public. On the end customer side, customers will often need to change neither their attitudes nor their behaviors, as the changes mostly concern the IT back end, but they will, of course, profit from potentially increased efficiency. Small to medium attitude shifts will be required if customers are also affected at the front end (e.g., managing digital identity in healthcare data management), as incumbent companies will focus on delivering end customer-friendly products and services.

Learning and Competence Shift

Incumbent companies embracing BDBM-T3 (e.g., Hyperledger Fabric) will need to significantly invest in learning and developing new competences to build and maintain DLT or similar blockchain-inspired infrastructures. Changing from legacy IT systems and processes as well as established traditional digital business models will thus require substantial investments in learning and competence development. From an end customers’ perspective, similarly to the attitude dimension, the required shifts will be small to medium.

Responsibility and Accountability Shift

Generally, the shifts required on this dimension will not be high for enterprise DLT consortia (e.g., Corda) because they can rely on traditional contractual agreements. For end customers, the shifts depend on the extent of personal involvement, which companies could adjust according to customer preferences (e.g., degree of responsibility for own identity management).

BDBM-T4

Because the focus of decentralization in these projects is low or nonexistent, the mainstream adoption of BDBM-T4 requires comparatively lower levels of cognitive efforts in terms of attitude, learning, and responsibility shifts. For instance, for mainstream adoption of CBDC (e.g., for an overview of current projects and their status, see CBDC Tracker [https://cbdctracker.org/]), these shifts largely concern the technical infrastructure and legal issues of central and commercial banks, whereas end customers have to submit to far less behavioral attitudinal and behavioral changes. However, critics have amply chided CBDC for its potential lack of privacy and high levels of state control. Thus, for customers, CBDC most likely will lead to much lower levels of privacy and higher levels of state control.

Discussion

Based on a differentiated view of the term decentralization in the context of blockchain technology, this article set out to analyze to what extent the type and degree of decentralization impacts the mainstream adoption of BDBM. The term has been and continues to be shrouded in ambiguity because different actors in the blockchain technology discourse in both practice and research have used it as a catchword for tremendously different goals. The frequent lack of a clear definition of the type and extent of decentralization for BDBM, in turn, has hampered the discourse on the chances and challenges of BDBM mainstream adoption in research and practice.

The present analysis yielded four types of BDBM emerging from the differentiation of two types of decentralization goals in blockchain-based business models, namely infrastructural distributedness (i.e., technical dimension of decentralization) and institutional disintermediation (i.e., governance dimension of decentralization). As has become evident, BDBM-T1—aiming at high decentralization on both dimensions—face the highest barriers for mainstream adoption. Not only are there several known technical and regulative issues but, in addition, they require fundamental paradigmatic shifts in customer attitudes and behaviors. Overall, this paradigm shift can be described as moving toward highly elevated levels of self-sovereignty, which necessarily goes hand in hand with increased levels of learning and competence as well as responsibility and accountability demanded from individuals.

From a customers’ perspective, there is a clear trade-off between the aspiration of high levels of self-sovereignty implied by high levels of decentralization (i.e., BDBM-T1) and BDBM’s ease of use. For instance, the freedom of being in charge of one’s own digital assets (e.g., cryptocurrencies) comes with the burden of learning about the digital assets themselves (e.g., risk); acquiring and continuously updating IT competences to be able to interact with the respective interfaces (e.g., decentralized exchanges and wallets); and taking full accountability in cases of failures and errors (e.g., technical failures and loss of private keys). Similarly, purchasing goods via decentralized marketplaces (e.g., OpenBazaar) gives buyers and sellers freedom from large corporations by cutting out the middleman (i.e., there is no intermediary) from transactions. However, doing so comes with the burden of increased effort to make a transaction. For instance, OpenBazaar users need to run the OpenBazaar server and client to participate in the network. Users have no direct support when technical and/or legal problems arise. Instead, users need to tackle issues themselves by using either the website’s documentation or consulting the code base, which is accessible as part of an open source project. Moreover, if they want to protect larger payments, they need to identify a moderator and use escrow for transactions. If there are problems after the purchase, buyers must appeal directly to the seller: No central entity performs the role of intermediary. Of course, some of these challenges can be partially addressed (e.g., sellers’ negative reviews preventing new customers from buying) but, overall, the trade-off between decentralization and transaction ease will persist because high levels of decentralization necessarily imply high levels of self-sovereignty which, in turn, implies higher levels of competence and responsibility.

Although high levels of customer self-sovereignty may be desirable as an end in themselves (i.e., an intrinsic end), they represent a fundamental paradigm shift away from current digital business models, which are aimed at providing the highest levels of customer service without requiring customers to worry about transactional issues, as described in the case of OpenBazaar (e.g., the GAFA, traditional Fintech, and other digital products and services). To achieve customer mainstream adoption of BDBM-T1, customers will need to significantly change their attitudes toward intrinsically valuing self-sovereignty and the attached behaviors, namely increasing competences and taking full accountability for their actions. However, the blockchain technology discourse around decentralization has often been led from a (software) developer’s and content creators’ point of view, which at least partly explains its participants’ enthusiastic view of decentralization. As outlined above, developers and content creators view several aspects of decentralization as highly desirable (e.g., independence from large corporations and platforms, such as the GAFA) and at the same time fully feasible (e.g., following, auditing, and producing necessary code for smart contract applications). Yet to adopt this perspective is to disregard the needs and competences of average regular customers with little or no coding background who want to get a job done. Although sufficient coding competences may possibly become part of standard education skills in the future (e.g., similar to using PCs or driving cars today), current (at least European) educational systems make it more likely that this prospect remains many years, if not decades, away. Moreover, true decentralization will always and necessarily require individuals to adopt high levels of responsibility and accountability, which may not be feasible for people in every life domain.

These issues, however, are much less pronounced for today’s BDBM-T2 and BDBM-T3 (and hardly existent for BDBM-T4). Thus, the mainstream adoption of BDBM-T2 and BDBM-T3 may likely be a matter of time and of solving technical and regulatory issues. Both BDBM-T2 and BDBM-T3 are focused less on complete customer self-sovereignty than BDBM-T1 are, and more on decentralizing or disintermediating certain incumbent structures to attain specific goals, such as increased efficiency, transparency, security, and collaboration. However, both BDBM-T2 and BDBM-T3 still comprise certain central elements by design which relieve users of complete self-sovereignty by taking over certain jobs for them (e.g., custodial services or technical support). Importantly, in terms of business model design, BDBM-T2 and BDBM-T3 also allow businesses the possibilities for value capture, in the traditional sense, rather than BDBM-T1. As BDBM-T1 aim at the highest levels of user self-sovereignty, businesses by definition have limited possibilities for such value capture, as the aim is to enable users to complete most jobs (including support and service) themselves.

Conclusion

This article set out to analyze the notion of decentralization in BDBM and explore its implications for BDBM’s mainstream adoption from a regular customer’s perspective. Because those engaging in the blockchain discourse, academic and non-academic alike, have previously used the term decentralization ambiguously and with widely diverging intentions, this analysis has aimed to clarify these different meanings and consolidate them in a basic typological framework. To this end, the present analysis introduced a two-dimensional typology to categorize BDBM in terms of their decentralization focus. As evident, the extant BDBM developers have been pursuing decentralization for extremely different goals, and to radically varying extents, reaching from efficient and transparent data sharing (e.g., enterprise DLT solutions) to individual financial independence disintermediating state institutions (e.g., using cryptocurrencies in self-custody), and to completely self-sovereign peer-to-peer organized business models (e.g., DAOs).

Overall, with regard to the relationship between knowledge and technology, this analysis shows that more technology, and especially more decentralization of technology, may require elevated levels of knowledge, competence, and accountability amongst customers, while concurrently reducing specialization and division of labor. Reaching such levels of knowledge, competence, and the intrinsic desire for individual accountability and self-sovereignty on the regular customers’ side would require enhanced technological, business, economics, and legal education. Although customers’ technological proficiencies have generally increased over time (e.g., working with a personal computer is now considered standard skill), products and services have also become easier to use (e.g., software ease of use has been steadily increasing over time). For instance, digital services such as Google maps have made traditional navigation knowledge (using a map and compass) obsolete, while being easy to use for regular customers. However, Google maps can offer enhanced usability because it is a centralized and “closed” service (i.e., it is not open source and cannot be altered or adapted), optimized around ease of use. Customers making decentralized applications based on blockchain technology, on the other hand, require additional knowledge to be able to properly use the services and be responsible for their own usage behavior. Thus, as this analysis has shown, a necessary trade-off exists between ease of use and self-sovereignty. The relationship between knowledge and technology appears accordingly ambivalent, as technology may both increase and decrease the levels of knowledge required, depending on whether products and services are aimed at building centralized business models with low levels of required customer self-sovereignty versus decentralized business models with high levels of required customer self-sovereignty. Future research is needed to further investigate the prerequisites and circumstances under which the mainstream adoption of BDBM in the sense of increased customer self-sovereignty is possible and desirable.