Five Failed Blockchains: Why Trade Needs Protocols, Not Platforms
First we.trade failed in mid-2022. Then TradeLens at the end of 2022, then Marco Polo in early 2023, then Contour in late 2023. Of the five major trade-related blockchains only Komgo has survived, but only after ditching blockchain.
The Trade Blockchain Graveyard
Each failed blockchain had enormous support and resources at the outset:
We.trade, launched in 2017 and built in collaboration with IBM on Hyperledger Fabric, boasted Deutsche Bank, HSBC, Santander, Societe Generale and UBS.
TradeLens, launched in 2018 and also built on Fabric, had industry giants IBM and Maersk.
Marco Polo, launched 2019 and built on R3’s Corda, had Commerzbank, BNY Mellon and SMBC with financial backing from ING Ventures and BNP Paribas.
Contour, launched in 2020 and also built on Corda, had ANZ, BNP Paribas, HSBC, and Standard Chartered banks along with a strong contingent of trade integration and documentation partners including Finastra, CargoX, Bolero and Surecomp.
Komgo, launched in 2018 on Quorum blockchain infrastructure and dedicated to trade finance, still boasts Citi, ING, and a dozen others partners and has over 100 customers apparently still using the platform, but has since ditched blockchain.
Despite all the money and power behind them, all major trade blockchains have failed in a surprisingly short period of time. There are several other blockchains dedicated to trade, but these five are the big ones.
Why Business Blockchains Fail
So why all the embarrassing failures? Ledger Insights explains the troubling trend this way:
“In most cases, the issue was a failure to achieve market fit and scale before the money ran out rather than any particular blockchain technology.”
I agree, blockchain’s technology didn’t cause these failures. Blockchains fail because they are platforms — an assertion I defend in detail below — and as we’ve seen in industry after industry, it’s nearly impossible to get entire industries to join the same platform. Blockchains succeed when they out-compete other blockchains for adoption, no different than centralized platforms.
What’s needed to enable secure global digital interoperability for trade are protocols, not platforms, specifically protocols for the secure peer-to-peer exchange of verifiable trade instruments. (<< Read the linked essay, it’s important.) While such protocols aren’t the only thing needed to achieve this elusive objective —standard schema also comes to mind , and is discussed below— protocols are necessary to escape the fatal limitations inherent to blockchains and other platforms.
How Blockchains Are Platforms
Blockchains inherently follow the same “EUM” pattern of the centralized, proprietary platforms they claim to replace, screaming “Everybody Use Me”, or more accurately, “Everybody use my service”. And though permissionless blockchains like Bitcoin and Ethereum may have decentralized governance — which is more than cool — business blockchains have their governance centralized around a single decision-making body, typically a consortium, that makes all the rules.
But regardless of whether a blockchain has decentralized or centralized governance, one common, inescapable fatal flaw remains: a blockchain is a single logical database that all counterparties must agree to use; a singular, rent-seeking source of truth that sits in the middle of all interactions just like proprietary platforms do.
Blockchains are not truly peer-to-peer, despite their claims. The fact that all participants depend upon the same master set of data — along with its bespoke technology, economics, security, and governance — is why there are so many blockchains competing for adoption, and with near-zero interoperability between them.
The problem isn’t with blockchain technology, it’s the blockchain model itself.
Platforms vs. Protocols
All blockchains are platforms, and are not protocols. This is not a subjective distinction. There is a simple way to determine whether something is a platform or a protocol: all platforms have one telltale sign in common: a rent-seeking entity or network that sits in the middle of all interactions. A protocol, such as TCP/IP, HTML, SMTP, 802.11, etc., is a language used entirely peer-to-peer, with no rent-seeking entity or network between peers and no master dataset generated or depended upon.
Being a platform doesn’t guarantee failure, however, as we see with Komgo. The world is full of successful platforms and Komgo is still around because it out-competed other trade blockchains for adoption, but then ditched their blockchain when they realized that blockchain was slowing them down and a traditional centralized database was better. The fact that they could make such a smooth transition away from blockchain illustrates my point: whether using a blockchain or a database under the hood, the platform-style relationship between Komgo and its users was identical, with Komgo sitting in the middle of every interaction and all participating counterparties paying rent. That’s a fine way to make money but an impossible way to make global trade digitally interoperable, because for twenty years we’ve learned and re-learned the same lesson, in industry after industry: it’s nearly impossible to get all necessary counterparties to use the same platform, no matter how powerful its partners are and no matter how much money it has.
Like all industries that struggle with digital interoperability, trade needs protocols, not platforms. For two decades now the trade industry has endeavored to create an electronic bill of lading to replace the paper one, without success. In my view this lack of success has been because competitive platforms lack the incentive to directly interoperate, seeing it as a competitive sacrifice, and they have no protocol available as an indirect alternative. Traditional proprietary platforms started this EUM, winner-takes-all pattern, then the blockchain consortia came along and promised something different: an exciting new way to break through the paper-to-digital logjam. But these trade blockchains acted no differently and did no better than the traditional platforms, ultimately leaving the industry still dependent on paper and paper facsimiles (PDFs).
In contrast, an open, non-proprietary protocol designed for trade could bring a new alternative: a common language that even competitive trade counterparties can speak to each other that brings interoperability without sacrificing competitive standing.
A “Universal Translator” For Trade
This brings us to the image and its caption at the beginning of this article: The trade industry needs a “universal translator”.
In Star Trek, when wearing a universal translator you can speak to any creature in the galaxy using your preferred language and they’ll hear you in theirs, and when they speak their preferred language you hear it in yours. Now imagine if all creatures in the universe were required to use a single, proprietary rent-seeking platform, network, or dataset in the middle to accomplish this, instead of adopting a common protocol/language… it would never work. The only way to solve such a galactic problem: a common, open protocol that’s adopted everywhere that enables devices to use a common, agreed-upon language with each other while speaking bespoke languages to each wearer.
That’s what protocols are: languages. In the case of Star Trek’s universal translator, the protocol is the language spoken between the devices; it must be free, open, and separate from the language spoken between the device and its wearer. Protocols don’t generate shared datasets like blockchains do and they don’t have rent-seeking actors in the middle. Protocols are like SMTP that enabled email senders and recipients to each build or buy their own favored email clients, rather than having to use a common platform like AOL, Prodigy, or CompuServe to exchange messages. Languages can be spoken peer-to-peer between any two parties without a third-party between them, so they are inherently decentralized.
Digital Containers & Payloads
It’s tempting to think of a data schema as a protocol, and in a sense it can be: for two parties to have semantic interoperability — to understand each other and be able to ingest and utilize received data from each other — there must be some degree of agreement about data schema. But the same is true with paper, which depends on common data elements if not exact schema. For digital environments, standardized schema for trade is being worked out by the ICC DSI and others, but… even ubiquitously agreed-up on data schema does not address the need for securely exchanging the schematized data; that part is still missing, it’s like agreeing on the format of physical mail without considering the need for a mail carrier. In the digital realm that ‘carrier’ must have verifiable security from origination to delivery. Without security, common schema is pointless; without common schema, security is useless.
To be crystal clear on this critical point: even when a data schema has been widely agreed to, without a protocol — a common language — for exchanging data securely, there’s no way to verify the source of the data and that it hasn’t been tampered with, revoked, or expired. This security element was supposed to be supplied by blockchains — which are quite secure, though they don’t address critical identity or key management issues — but their platform-like attributes prevented broad adoption for the reasons listed above, leaving trade back where it started: paper and paper-like facsimiles (PDFs).
What’s needed are protocols for secure data exchange that act like digital ships and containers, with schematized data as the payload. Imagine a trading world where all data is received in the form of a standardized schema that arrived in a secure data container that is instantly verifiable in three critical ways:
- The identity of the originators of the data, and of all who contributed to or endorsed it;
- It hasn’t been tampered with, revoked, or expired since origination;
- It doesn’t require subscribing to any particular blockchain, network, or proprietary platform.
Having secure, globally verifiable data containers with schematized data as the payload is when the global trading game really changes. And it requires protocols, not platforms, to eliminate competitive sacrifices, maximize adoption, and have limitless scale.
In Conclusion
This is something we are working on at Digital Trust Ventures: free, open protocols for trade that work like digital ships and containers and result in a “universal translator”-like effect for counterparties, enabling each to speak and hear their chosen “language”. And like physical containers, these digital containers will have no opinion about the payload inside; the job of these protocols is to ensure that exchanged data is verifiably not tampered with, revoked, or expired, without need of platforms, networks, other entities in the middle.
More to come, later this year. Stay tuned.
