Leveraging blockchain’s potential – The paradox of centrally legitimate, decentralized solutions to institutional challenges in Kenya

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Highlights

  • Kenyan culture is well-suited to adopting blockchain solutions.

  • Need to gain resources to technical capacity building; and a need for regulative interventions.

  • Market and institutional actors need to collaborate to overcome the paradox of centrally legitimate, decentralized solutions.

Abstract

Blockchain technologies and business models offer a multitude of decentralized and distributed services, but our understanding of the conditions necessary to reach the emerging technology’s full potential is incomplete. The benefits are perhaps most pronounced in developing economies where high institutional misalignment, or even dysfunction, leaves much room for improvement, but we know even less about these contexts due to a dearth of primary research. In this article, we survey thirteen key entrepreneurs and managers in Kenya to identify and observe the current challenges associated with unlocking the potential of blockchain-enabled services. We identify three conditions that need to be met: sufficient technical capacity, appropriate regulative interventions, and most importantly, the adoption of decentralization logics. To truly leverage blockchain technology, market and institutional actors need to collaborate to overcome the paradox of centrally legitimate, decentralized solutions.

Introduction

Blockchain technology is generating considerable excitement as a technological breakthrough and, perhaps more importantly, for its potential to restructure systems that rely on a central authority. Although much of this excitement has centered on its use for cryptocurrencies such as Bitcoin, which has led to some confusion about the nature of the technology, its utility is touted to be unprecedented globally (Chen, 2018; de Soto, 2018). Blockchain technology is essentially “a distributed database of records, or a public ledger of all transactions or digital events, that have been executed and shared among the participants” (Angelis and da Silva, 2019, p. 308). Its application has recently been extended to supply chain management solutions, digital signatures, hospital records and transparent voting during elections (Roehrs et al., 2017; Hughes et al., 2019), and it has received attention in both management and entrepreneurship research (e.g., Angelis and da Silva, 2019; Chen and Bellavitis, 2020). Due to its distributed nature, information contained within blockchain applications is secure, immutable and highly transparent, which potentially eliminates the traditional role of governance through centralized actors and intermediaries (Telpner and Ahmadifar, 2017; Sun et al., 2016).

Blockchain technology would seem to be particularly valuable in developing economies, where secure, immutable, transparent records are not common. Developing governments are often fraught with unstable, inefficient or misaligned institutions that hinder economic transactions (Sutter et al., 2013). Technological innovation has been shown to drive economic development and poverty eradication (Bruton et al., 2013), largely through increasing efficiency within markets, but the decentralized nature of blockchain networks has the potential to go beyond gains in efficiency, by fundamentally restructuring systems so that they no longer rely on these dysfunctional institutions to act as third-party guarantors (Angelis and da Silva, 2019).

Although blockchain technology is in its infancy, many potential uses have been identified such as transparency and accountability in elections (Kshetri and Voas, 2018), recording land registry and ownership (Underwood, 2016), facilitating capital transfer (Peters and Panayi, 2016) and aid disbursement (Pisa and Juden, 2017). While the potential to disrupt existing modes of transaction is massive in theory, there are several layers of barriers that limit this potential. In order to better understand this crucial and emerging phenomenon, we interview entrepreneurs, and managers in the blockchain sector in Kenya – a developing economy known for its robust technological capacities -- to learn how blockchain users view the technology’s viability as a solution to institutional challenges. A crucial question emerges: can decentralized solutions apply to central government’s challenges?

Section snippets

Potential

The potential for greater market efficiency though secure, transparent and immutable record keeping certainly makes blockchain technology an exciting innovation (Block et al., 2020; Chen and Bellavitis, 2020; Fisch, 2019; Angelis and da Silva, 2019). However, this study aims to explore the potential for systematic solutions to institutional problems. Prior studies argue that innovation plays a central role in economic development (e.g., Bradley et al., 2012), but entrepreneurs in developing

Data

Our research approach was inductive – gathering data on current activity and agents’ perception of opportunities, potential and barriers, from which we derived theoretical insights. In 2019 we conducted a series of in-depth interviews with 13 entrepreneurs or managers from the blockchain sector, along with field observation and collection of business presentations, business models, performance and mission statements (see Table 1). We have selected these entrepreneurs and managers because they

Analysis

Our data analysis is based on the analytical procedures introduced by Gioia et al. (2013), who recommend a three-step process which categorizes responses, develops second-order themes and ultimately forms an aggregate dimension. We combined this procedure with an abbreviated grounded theory approach (Charmaz, 2006) which uses coding, categorizing and memo-writing to develop theoretical models. First, all members of the research team independently listened to the interview transcripts, reviewed

Findings

In this paper, we have investigated how the potential of blockchain applications can be leveraged to address institutional challenges in Kenya. Our respondents were enthusiastic about this potential but consistently reported concern that there was too much hype surrounding the topic. We found that most of the entrepreneurs in our sample were limited by (1) a lack of technical capacity and were forced to direct significant resources towards workforce education and training. Moreover, they were

Discussion

Previous studies have touted blockchain technology’s potential to solve institutional problems (Chen, 2018; Hughes et al., 2019) and our research sheds some light on specific challenges to meeting this potential. Here we return to Williamson’s (1975, 1985) four-level institutional framework. The three areas that we argue must be changed in order to implement blockchain solutions to institutional challenges in Kenya coincide with the first three levels of his framework, beginning with the lowest

Future research

The emerging nature of this topic, and the radical change that decentralized institutional processes would necessitate, lead us to reevaluate the interplay between governmental institutions, entrepreneurs and emerging technology (Jennings et al., 2013). What do public-private business models look like, where entrepreneurs are designing and implementing institutional solutions? How are profits shared? Tax dollars allocated? Disputes settled? Are African entrepreneurs even willing to partner with

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