Preparing for blockchain business
INSIGHT ARTICLE |
Blockchain is best known as the platform supporting the cryptocurrency bitcoin, but the technology’s most far- reaching impact is developing quietly behind the scenes.
Blockchain technology allows for the recording, execution and auditing of contracts in real time on distributed ledgers. It can be adopted to asset sales, payments, loans and contracts of all types. Bitcoin’s value could fall to zero and blockchain would still disrupt industry transactions.
Bitcoin’s value could fall to zero and blockchain would still disrupt industry transactions.
Here’s how: by eliminating the need for trusted third parties, blockchain continues the internet’s elimination of middlemen.
Bitcoin might have been created in a libertarian mindset, but corporate America has moved in. Microsoft allows you to run a blockchain on its cloud platform. IBM is positioning itself in big blockchain applications. Walmart is using blockchain to speed up the food recall process. Former Wall Street executives are using blockchain to redesign stock exchanges.
Ultimately, disruption will come to arbitragers of all stripes.
Industries on the brink
While blockchain’s full impact may still be three to five years away, companies in four industries will soon find themselves on the bleeding edge:
- Supply chain. Business will change as blockchain increases efficiency and reduces the need for some third-party intermediaries.
- Financial services. International wire transfer services, as an example, may decrease in favor of cryptocurrencies.
- Nonprofit. Nonprofits may seek to make delivering aid more effective.
- Health care. Many startups are looking to disrupt the industry.
Consider what happened with the advent of the internet. Companies with profitable businesses that relied on paper, faxes and traditional mail suddenly found that they weren’t in profitable businesses any more.
To be sure, it’s important to remember that blockchain is in its infancy. It’s like basic text-based email. Creating human-friendly blockchain applications will take time.
New types of contracts
Viewing a blockchain simply as a technology or database overlooks its true disruptive impact—its ability to reengineer processes.
In the future blockchain will create a new way to deliver contracts and transactions between parties.
These new contracts will need to address the risk of error. In the past, a phone call to a bank officer could stop a wire transaction. Blockchain’s automatic execution is merciless to fat fingers.
Transactions will need to be redesigned to specify exactly when payment-triggering events occur, and a neutral oracle will be required to help resolve smart contracts.
Planning for disruption
Right now, companies should be analyzing how blockchain and cryptocurrencies could disrupt their businesses, planning counterstrategies, and perhaps exploring new opportunities.
Banks with wire transfer businesses should take steps to compensate for the loss of those future profits.
Suppliers should consider the profit that could be lost if processes are reengineered.
Many business ideas predicated on blockchain will go bust as understanding replaces enthusiasm.
Not every business process will benefit from blockchain. With so much hype around blockchain, everyone is trying to incorporate the technology into their new idea.
Many business ideas predicated on blockchain will go bust as understanding replaces enthusiasm. That doesn’t mean disruption won’t occur—and even if it doesn't happen all at once, businesses cannot sit back and wait. As with the internet and social media, this new technology will eventually become ubiquitous.
With special thanks to Omid Malekan, author of “The Story of Blockchain: A Beginner’s Guide to the Technology That Nobody Understands.”