This year, industries across all sectors are looking into how blockchain can benefit their businesses. Despite growing global hype, systematic inequalities remain across the blockchain landscape. As the underlying technology matures, some of these inequalities will be addressed and eventually overcome, while other inequalities are a product of market forces and are deeper and more complex. These inequalities require unprecedented solutions. Although blockchain undoubtedly offers a dramatic and provocative future, businesses and technology stakeholders alike must understand the risks they might encounter and what a successful pivot could require.

From an investment perspective, the most exciting aspect of the ongoing blockchain revolution is undoubtedly the initial coin offering (ICO), which has captured the attention of alternative investors and technologist across the globe. Even though this new capital raising mechanism has yet to be fully defined by government regulators, increased capital continues to flow into new projects. In a seemingly clear rebuke to the modern venture capital based funding model, new companies are motivated to raise greater capital sums without exchanging any formal ownership or obligation to coin or token investors. Likewise, coin or token investors are attracted to the opportunity to invest in blockchain ventures sooner than previously available without having to prove that they are accredited. ICOs enjoy global market access to investors, enabling them to raise unprecedented amounts of capital — in some cases raising several hundred million dollars in hours or days.

Yet, this unregulated market has demonstrated it has the potential to harm investors whose participation has resulted in proprietors of ICOs with vast capital and no obligation. Some ventures have dissolved before any product delivery with no fiduciary duty to investors to continue on. While ICOs provide a unique way of raising needed capital, market participants and regulators alike have called for intelligent and tempered regulation. This inequality clearly privileges proprietors of ICOs over their investors. Ventures that voluntarily abide by the rails of securities issues established by their governments, produce a valid business plan and whitepaper and raise a targeted offer in line with their capital requirements will empower their beneficiaries greatly and reduce this inequality. 

In this nascent environment, investors and market participants have demonstrated an eagerness to prioritize their investments. Blockchains and blockchain platforms have dominated the cryptocurrency conversation, building hype around the benefits of decentralization, privacy, innovation and immutability. The mechanism on which adoption depends is an ecosystem of applications fully reliant on blockchains and blockchain platforms. To the blockchain industry, these applications are known as decentralized applications (or “dapps”). An inequality of potential exists between the promised benefits of blockchains and the current applications built on them. Even in their infancy, dapps have proven to demonstrate significant potential over web technology at its advent.

ICOs have two major purposes: to release utility tokens to the public for use with a dapp or to generate funding for a project by purchase of tokens outright. Commonly, dapps are either directly funded by ICOs and may use tokens to power the functionality of the application itself. Traditionally, projects are funded through venture capital, whereas ICOs offer new avenues of funding for projects to create decentralized applications without exchanging formal fiduciary obligation. Dapps address a diverse array of enterprise solutions, many at a lower cost than current systems. Some of the more popular use cases include payment platforms, data storage, user verification and digital asset rights management.

Inevitably, blockchain platforms will begin to pivot to emphasizing their offered dapps over themselves. One such example is Mist, the first ever dapp store run on the Ethereum blockchain which will provide consumers with easy access store, unlocking the new frontier of blockchain.

At the heart of blockchains is their consensus algorithm. Currently, the most widely used model is proof of work (PoW) with proof of stake (PoS) a distant second — the majority of the top 10 cryptocurrencies by market cap are proof of work. Much like conventional markets, there are unavoidable inequalities inherent in each version which grant greater rewards to those with more capital. As PoW consensus relies heavily on upfront equipment purchases (often thousands of dollars for a single mining rig) and high continuing electricity costs, this archetype is particularly capital intensive. Miners and mining pools with higher expandable capital have the ability to purchase more equipment, which translates to more frequent block rewards compared to smaller market participants. Similarly, PoS relies on staked pools of coin to create consensus with all transaction fees generated from the new block rewarded to selected stakes. Larger stakes have a mathematically higher chance of being chosen, which creates a bias toward participants with deeper pockets. Despite this inequality, the blockchain consensus model is a vast improvement to traditional market systems. This is derived from the foundation that within a given blockchain, all participants are subject to the rules set by the blockchain algorithm. The only way to amend the rules is through a blockchain mechanism known as forking. However, there is no guarantee that the market will follow the forked chain if the new rules do not provide a benefit to all participants. In existing and traditional markets, the biggest players increase their market share until only a few control the system, skewing the rules to their advantage.