The rise and fall of crypto in 2017/18 led to a much-needed purge and flushed out mediocre blockchain projects and protocols. Those remaining have come a long way: in recent months, many promising protocols have launched their mainnet, many blockchain companies have raised substantial amounts of capital, decentralized finance was born, and regulators began building the necessary legal foundation for blockchain projects to thrive. Hence, many companies are about to elevate their business to the next level – and to achieve that, they need to rethink their blockchain infrastructure.
I need to run my own infrastructure
Companies such as exchanges, custodians, traders, data analysts, and others need direct access to blockchain protocols to enable their business case. For them, blockchain infrastructure is essential, a critical part of their business. Without a highly performant, reliable, and secure node infrastructure, their business is in danger. Yet, when standing at the crossroads of maintaining this critical part of their business or outsourcing it, many companies choose the former. Why?
Asking hundreds of companies this question, three main themes emerge:
- If we don’t do it ourselves, it will be worse.
- We offer a holistic solution, all out of one hand.
- We’ve done it until now, why change?
For many companies that scale up their business, rethinking these statements will be paramount. It needs to be painfully clear: blockchain infrastructure is critical, it is a requirement for many business cases, it is their enabler. However, it is important to remember that such infrastructure is the enabler, not the business itself.
As the business grows, complexity follows
Let’s take a step aside and learn from the traditional industry. Nowadays, most companies outsource large parts of their IT infrastructure to data centers, companies such as IBM, or the big cloud providers. Why? Because maintaining their own infrastructure is a major cost driver for a commoditized product. It’s highly unlikely that a normal company would achieve economies of scale for machines, knowledge, and manpower compared to the large infrastructure providers. Hence, they entrust their infrastructure to experts.
How does that translate to blockchain? As the maturity of companies grows, their requirements begin to rise, and maintaining infrastructure becomes increasingly complex and demanding. In the past, the main objective was to build a viable product and gain the first customers. At that phase, node infrastructure was less complex: fewer protocols, lower requirements. The market was less competitive, initial difficulties and frictions were to be expected. Now, many companies have built the reputation of being one of the leaders in their field, they attracted attention and acquired bigger clients. with this growth comes increased expectations and requirements. Soon it turns out that one engineer won’t be able to maintain the node infrastructure on the side, but companies begin to build whole teams of engineers to make sure their infrastructure grows with their expectations and promises.
What does that mean for their business? Higher performance requirements combined with upscaling support of protocols inevitably lead to increased complexity and cost. Infrastructure needs to be performant, reliable, and it needs to get here fast. Hence, a considerable amount of resources are needed to build and maintain infrastructure to elevate the business to the next level. But there is one problem: resources are spent on the wrong aspect of their business.
Choosing the right path
Node infrastructure is essential, critical even, but it is merely the enabler of the business, never its core. It runs in the background and is invisible as long as it runs smoothly. However, committing too many resources on infrastructure in consequence leads to fewer resources attributed to the product itself. Many blockchain companies are standing at the same crossroads that traditional companies have been at before: should we do it ourselves or should we outsource?
This brings us back to the three main blockers to outsourcing infrastructure. Why are they hesitant? The assumption that they do it best themselves is perfectly understandable, but false. The past has shown that and today it is no different. For most companies it is economically impossible, or at least highly inefficient, to commit as many resources to node infrastructure as infrastructure providers do. The sooner they come to this realization, the lower the technical debt. This also makes the second statement questionable: While some customers might value the “all from one source” approach, it consequently leads to lower performance, higher cost, or both. These inefficiencies can potentially initiate the downfall of a promising company. The third statement is the most truthful and revealing: many are afraid of change. What has worked in the past will work in the future – until it no longer does.
The longer these companies decide to walk the path of maintaining their own infrastructure, the higher is the technical debt of going back and choosing the second path. In the meantime, competitors get rid of this burdensome task and focus resources on the core of their business, close the gap, take over the lead, and elevate their business to the next level. Why? They don’t need to spend internal resources on infrastructure and can contact a trusted partner to handle instead.