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1 February 2019

Constellation Labs says 2019 is boom or bust for blockchain

As a whole, the blockchain trend has had a bit of an Icarus year, flying too close to the sun and being burnt for its hubris. But while it hasn’t yet fallen into the sea and drowned, as per the Greek myth, it has certainly been taken down a peg or two. There is now a great deal of skepticism, and companies and investors are taking much longer looks at the startups that have embraced the technology. To this end, Riot spoke to Constellation Labs, a startup focused on enterprise-blockchain applications, with IoT ambitions, to get some perspective on where the market has moved to.

The gist of Constellation’s proposal is a data marketplace that uses a backbone based on cryptocurrency technology to allow all manner of devices to join the marketplace and trade data – and be compensated for contributing either data and/or the processing power needed to keep things running. The blockchain functions would facilitate a level of data validation, so that a buyer can trust that the data they are paying for is accurate and therefore valuable. That marketplace might end up being a truly global public platform, but it could also be used by an enterprise and a few select partners. Or, of course, it could simply fall into the warm Aegean Sea.

However, based on our conversation with Benjamin Diggles, Constellation’s VP Business Development, the company does seem to have its head screwed on. Diggles, a former Oracle employee, said he was very aware that the market has a lot of noise in it, and to that end is focused on ensuring the Constellation’s engineering team is up to scratch. Given the youth of the company, just over 13-months old, it would be easy to doubt its chances, but Diggles is very aware of the challenge ahead.

Constellation held an initial coin-offering (ICO) last year, as a way to raise funding. ICOs have attracted an awful lot of attention from regulators, with some beginning to challenge them and treat them as securities that should therefore be regulated, but for now, Constellation is one of the few tokens to actually be listed on the crypto exchanges, and it is notable for not giving away any equity through the deal.

The company is also part of the Hyperledger Project, hosted inside the Linux Foundation, as well as the MOBI (Mobility Open Blockchain Initiative), as well as being a founding member of the Scalable Protocol Alliance (SPA). For those that are veterans of this space, the whitepaper is worth exploring.

Currently, it is the only Directed Acyclic Graph (DAG) focused member in Hyperledger, and if you recognize that term, it is likely from reading about IOTA, a company that has similar ambitions. The DAG approach is fundamentally different to the blockchain approach, and IOTA has been quite touchy about that in the past, but the DAG system does avoid the onerous task of using ‘miners’ to process the transactions within the network.

So Constellation seems to be a member of the right clubs, and its early test projects quickly identified two types of buyer for its services – those who need a way to ingest vast volumes of validated data, as part of a Big Data application, and those who need a mechanism to move data between vast numbers of edge devices, in an autonomous fashion.

We pushed for examples, and Diggles described a validation project with a major industrial OEM, which wanted to see how it would go about validating the sensor data from many types of devices, accounting for millions of end-nodes, in a network that could function without human intervention.

Diggles described how the project is effectively using Constellation as a base layer to normalize the data and then validate it, so that participants in such a network can trust that a particular sensor is reporting accurate readings, and that it is not being duped by an imposter. Diggles notes that this smart city use case is something of a white-whale for IoT projects, and that the reality of most such trials is much smaller – trying to make a small number of devices communicate, before trying to take it into a live environment.

For now, Diggles says that the skepticism of the large companies involved has been thwarted for now, and that they can see that there is an inkling of potential that could be scaled very quickly to accommodate legacy business functions. However, he notes, the issue is definitively proving the business value of this potential, which is dependent entirely on the structure of the business itself.

A quick example provided was a service provider dealing with customer disputes. Currently, it is often cheaper to just issue a refund for a ticket or a meal, than to try to comb through your own logs and public data in order to dispute the customer’s assertion. However, with a system such as Constellation’s, the promise is that this process would be quick and easy enough to make challenging the dispute cost-effective. The trade-off is that you will need a lot of validated data to do this, and so you need someone like Constellation.

According to Diggles, Constellation hasn’t had a hard time making it into the proof-of-concept trials that are being explored by the large firms, but he says that the difficulty is found in understanding the business value of these PoCs. To this end, he says this is where the overly-academic approach of blockchain has failed so far.

As such, Constellation is interested in exploring the joint-sell opportunity of working with a tier-two supplier that is looking to sell to a tier-one. The largest OEMs are far more likely to trust these tier-one or tier-two firms, whereas a blockchain startup knocking on the front door is going to have a nigh-on-impossible challenge in trying to sign such a deal without these sorts of partners. In these kinds of partnerships, the Constellation stack would simply be included in the products being deployed, which would then give it a platform on which to build.

Currently, the business case is based around event-based API calls, with Constellation not looking to see or handle the data moving around on the networks. Like many crypto-themed startups, Constellation wants to use its token as both utility and payment token, such that a company could use them to pay for data purchased in the marketplace, or pay for services rendered. There is still a lot of uncertainty in the wider technology field, of the viability of this sort of token mechanism.

The two main concerns, and therefore opportunities, for these distributed ledger technologies (DLT) are latency and security. One of the main arguments in favor of edge-computing is the burden that the round-trip to the cloud puts on the speed of decision making. That’s a burden that could be exacerbated by a cloud-based data validation mechanism, and so the likes of Constellation claim to be able to solve that problem. It’s a similar argument for security, but the public key infrastructure (PKI) vendors are not going to go lightly, and certainly not to a usurper such as the blockchain/DLT community.

But Diggles warned that all the progress of IoT devices is for naught, if they are not interoperable. To this end, a system like Constellation’s would provide an incentive for the IoT devices to be joined up, such that they can share data and power the larger applications. In this manner, there would be a brand to act as a consumer badge that indicates this is an option, and hopefully as a seal of approval from the device manufacturers.

Riot’s go-to example of this sort of mechanism is a consumer air-quality sensor, deployed in a home. For the owner, the purchase price could be offset if they were able to make their home’s air quality readings available for purchase on some form of IoT data marketplace, where all manner of bodies could pay to acquire such data in aggregate.

The reason that a blockchain-based system makes a lot of sense in the data marketplace is that its heritage in powering cryptocurrency transactions in a decentralized fashion, in an environment where nobody trusts each other, means that it is well-positioned to ensure that one can absolutely trust that the data (the commodity) coming from a sensor is valid and therefore valuable.

HVAC suppliers are obvious candidates, as are governmental or healthcare suppliers looking to better understand the environment. However, without such a marketplace, these kinds of buyers don’t have a practical way of acquiring that data. The amount the owner of that sensor makes could be negligible, but it would be a way that the consumer can control how their data is handled, which in time might be off-limits to the device-maker, thanks to rumblings about data ownership legislation.

Diggles touched on the looming problem of discerning who owns which bits of data, as in the above example, there would be disputes from the consumer, the ODM that built the product, and the brand that sold it, never mind the plethora of candidates that would stake a claim higher up the stack. Here, a mechanism like Constellation could provide a third-party validation system, to answer that particular question.

Rounding out our conversation, we asked about the main risks facing Constellation. Diggles said that like everyone in the blockchain market, the biggest challenge is adoption, as you can’t sell a decentralized network if the network isn’t big enough. Diggles said this was putting the cart before the horse. He said that 2019 is a year in which the community can still get the C-Level meetings needed to secure a future, where demos can convince leadership of the merits of the technology, but that there is a definite air that this is a boom-or-bust year.