Trends and Technology
Blockchain implications for your business
February 1, 2019 |
Blockchain has made millionaires overnight and promised to completely disrupt business. But why does blockchain matter, and what does it really mean for your business?
The short answer is that blockchain is a new way to record information that could change everything from how we buy things to how we make agreements with each other.
So yes, it does matter—but not in the way many people believe.
This article reveals why blockchain is generating so much excitement, and what it actually means for your business.
Why blockchain matters
Over the last 5000 years, humans have made huge progress in how we record information—from hieroglyphs to modern computers.But all of these methods have two big problems:
- Incorrect information can be recorded
- Records can be changed
This is why we have so many processes and institutions to protect and verify information—things like courts, auditors, banks, and third-parties.
Even then, bad information still gets recorded and good information gets corrupted.
A new way to record information
These persistent problems of verifying and protecting information are why blockchain has such exciting potential.
Blockchain is a technology that allows information to be recorded in a way that is:
- Independently verifiable
- Subsequently unchangeable
It addresses the two key weaknesses of current methods of recording information—that incorrect information can be recorded, and that information can be changed.
In theory, information recorded using blockchain technology is always true and always safe.
Business applications for blockchain
Think of all the processes and institutions we have for verifying and protecting information. Blockchain has the potential to dramatically reduce the need for these costly and inefficient solutions.
A smart contract is a contract that automatically executes an agreed-upon transaction as soon as certain conditions are met, without human interaction.
Take insurance as an example.
You buy travel insurance for an upcoming trip, and your flight is canceled. Instead of waiting for weeks and going through a lengthy claims process to get reimbursed, the money is transferred to your account as soon as your flight is listed as canceled.
According to IBM, over $4 trillion worth of goods are shipped each year.
Every time goods are moved, extensive documentation and verification are required by all the parties involved—manufacturers, transportation companies, and customs agents, to name a few.
This creates lots of friction and inefficiency that costs time and money.
Blockchain technology can provide one independently verifiable and secure record of a product’s movement through the supply chain, dramatically shortening transport times and reducing costs.
Cryptocurrencies like Bitcoin are digital currencies that don’t rely on banks.
Traditional currencies require banks to do things like controlling the distribution of money and verifying and recording transactions.
With blockchain technology, there is no need for a bank to verify, record, and protect transactions. People can transact directly with each other and know that the transactions recorded will be accurate and safe.
This means faster transaction times and lower costs.
What blockchain means for your business
Blockchain is an innovative technology with some exciting applications, and the hype around it is real.
So is the fear of missing out—84% of companies claim to be dabbling in blockchain, according to a recent survey by PwC.
If you’re a business owner or finance professional involved in allocating resources for your company, you may have wondered:
Should we be investing in blockchain to stay ahead?
The simple answer is no, you shouldn’t. Here’s why.
All sizzle, no steak
The reality is that despite exciting potential, blockchain has yet to go mainstream. Outside of cryptocurrencies, there are few examples of blockchain solving real business problems.
One study examined 43 real-world blockchain applications in the international development sector—organizations like Amply, which claim to be using blockchain to help teachers track students’ attendance.
The study found 0 cases with any evidence that blockchain had delivered the promised results: “We found a proliferation of press releases, white papers, and persuasively written articles. However, we found no documentation or evidence of the results blockchain was purported to have achieved in these claims.”
But if blockchain is so revolutionary, why is real-world adoption and success so low?
Blockchain can only solve certain problems
The first reason is that blockchain is only a good solution for certain types of problems—not the cure-all some would have you believe.
Blockchain could be a good solution for problems where:
- There are intermediaries that can and should be cut out.
- Information absolutely must be verifiable, unchangeable, and secure.
- Automating actions (like a payment) when certain conditions are met will save time and money.
If the problem you’re trying to solve doesn’t have these characteristics, blockchain isn’t a solution worth pursuing.
Blockchain has some real limitations
Even if your business problem checks all of the above boxes, that doesn’t mean blockchain is the best solution.
It’s easy to describe the potential of blockchain in theory, but applying it to real-world problems is much harder.
In a survey of 293 of CIOs—the executives responsible for allocating technology resources—Gartner found that only 1% had invested in or deployed blockchain.
Only 8% said they were in near-term planning or experimentation, and 77% said their organization has no interest in the technology.
These numbers reflect some of the current limitations of blockchain technology.
Lack of trust
Trust is key to adoption, and many people still don’t trust blockchain. As with any new innovation, a lot of questions still need to be answered about the technology’s reliability, scalability, and security.
Blockchain’s security, in particular, has been called into question as successful attacks on blockchain networks become more frequent.
Integration with legacy systems
In order to work properly, a blockchain has to be integrated with legacy systems and processes.
This takes a lot of time—and due to blockchain’s decentralized structure, that doesn’t mean simply plugging in a new software, ERP-style. It means traditional business processes, tech stacks, and even leadership structures will have to change.
Challenges building consensus
While creating an internal blockchain is hard enough, the greatest potential for blockchain to improve business is in industries where different companies can use it to create a shared platform.
But to be an effective shared platform, all the companies must accept and operate on a shared set of rules and standards for the blockchain.
Getting different organizations to agree on what those rules and standards should be is a real challenge—think of how hard it is for friends to even agree on a place to go for lunch!
Governments are still coming to terms with blockchain and how to regulate it. New regulation could change the business landscape for blockchain in the near future, meaning investing now carries extra risk.
Blockchain today is like the internet in 2000
Blockchain is in an era similar to the dot-com boom of the late 90s—lots of excitement around a disruptive technology has created a bubble of thousands of me-too businesses, speculative investment, and oversized valuations.
But all bubbles burst.
For cryptocurrencies, the bubble has already burst. With blockchain, the hype is dying down. A report by Axios found that mentions of the word “blockchain” on earning calls by S&P 500 executives dropped 80% last year.
Like the internet, blockchain is here to stay—but it will take time for the technology to mature.
In the meantime, don’t get caught up in the hype.
We may all live in a blockchain economy someday, but it’s going to take a while to get there.
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