What does it mean for tech companies?
By now most people have wrapped their heads around what blockchain is. In a business world where corruption and fraud are rife, blockchain has proven there’s a different way of doing things that can lead to better results
It’s worked for crypto currencies and now predictions are that blockchain use cases will become mainstream in supply chain, finance, and possibly even medicine. But as much as this is predicted to be the next big tech trend, how does it play out in reality?
We look at some of the advantages and challenges of blockchain to map out what tech companies should be considering if they want to incorporate this as part of their future facing strategies.
Blockchain sugar coated
Here are a few benefits and advantages of blockchain (to us… they sound promising)
Decentralization
One of the challenges of traditional business models is that they’re far too vulnerable to manipulation. An altered invoice here or a delivery note there that doesn’t add up? Validating what the correct information is, isn’t always easy. The fact that general accounting practices make allowances to write off losses indicates that it’s a fundamental flaw in traditional business models.
With blockchain, the source of truth is owned by multiple nodes. If one is altered, the other nodes are alerted, data is compared and it reverts back to what’s held by the remaining nodes. In other words, the record of transactions becomes effectively unalterable because it’s decentralized.
Transparency
A second benefit derived from decentralization is transparency. Data can’t be easily hidden because it’s distributed among several nodes. This is an important factor when it comes to regulatory compliance, particularly related to security and sustainability practices.
Take for example greenwashing that is all too common. Companies make claims and sign off on compliance requirements without actually fulfilling their obligations. They get away with it, because it’s difficult to track, especially when there are extended supply chains involved.
Security
Your average criminal isn’t likely to be deterred by a single police officer. They might put more trust in their abilities that they can avoid getting caught. The odds change significantly when faced by a whole squad of police officers. Then they’re going to think twice.
This is the security principle applicable to blockchain. With multiple nodes processing and storing data, the single source of truth is overseen by multiple “security officers”. They might be able to avoid detection by making alterations on one node, but they’ll never succeed in changing all of them.
Unalterable records
Any company can present financial records. They can even be audited, but there’s no real way of knowing if transactions have been hidden, recorded as something else, or have been altered along the way. With blockchain, the transactions are recorded as they happen and the information is immediately decentralized making it next to impossible to manipulate.
Having an immutable audit trail is a major benefit, especially for cross border transactions and industries where compliance is closely monitored. As new regulatory requirements are brought in, for example with regards to environmental impacts, this may drive greater adoption of blockchain.
Current blockchain challenges
You have to wonder why, if blockchain is offering all these advantages, it is still just a future trend. Why hasn’t already been implemented across more industries outside of crypto? There are some use cases, but they certainly aren’t mainstream yet.
This is because in order to take advantage of the benefits of blockchain, there are significant barriers to overcome. Blockchain is not just another an app that can simply be bought and integrated into an existing business solution. It uses very specific coding, needs dedicated cloud-based tier 2 and 3 data centers and a well thought out system to manage permissions. It is a complex process requiring collaboration between multiple stakeholders.
Even if the company has access to data centres, they’re unlikely to have the blockchain expertise needed, and to bring it in is very expensive. Blockchain is a specialist skill, not just anyone can set up all the nodes and understand how to make the code work. Frameworks exist, but they require huge investment of capital and time to implement. To justify that, there has to be a very clear and specific need. Most businesses aren’t there yet.
Also, most applications of blockchain are still focused on crypto currencies and finance. There are only a few that are starting to expand into enterprise applications making blockchain available for broader use cases.
Possible future blockchain applications
The potential for blockchain to impact industries is there, but what will drive the need to the point where it’s practically scalable? The following use cases have been suggested as those that may have the most potential:
Cross-border transactions
Different banking systems, a lack of controls, or too many controls are challenges that typically hinder cross-border payments. This is especially true in developing countries where banking systems differ. Some developed countries rely on a routing number to direct the transactions to the correct bank, yet in other countries routing numbers may not exist. Instead, they use SWIFT or IBAN numbers.
Bridging different banking systems typically results in payment delays as transaction details often needing to be manually validated. Using blockchain as a decentralized way to transact can overcome these challenges. A significant added benefit is the immutable record of transactions that can provide transparency to potential investors, and therefore foster more investment opportunities.
Sustainable and ethical supply chains
Driven by changing regulations and pressure from consumers for ethical and sustainable sourcing of materials, blockchain could deliver the required transparency and records for reporting.
Currently one of the few industries that are using blockchain is diamond mining. Blockchain has been implemented to authenticate where the diamonds were sourced. The underlying objective is to prove that they are not conflict diamonds, originating from war-torn areas where the mining funds military conflict.
This is an effective application, but the barriers to entry remain costly. Blockchain shouldn’t only serve the elite, there’s value to be delivered in all supply chains.
Consider the food supply chain. A major concern is the rapid rate of deforestation and biodiversity loss that is happening because of mass food production. Palm oil plantations are replacing tropical forests in Southeast Asia, and forests being cleared for cattle grazing in South America
Blockchain could help navigate the complexities of supply chains and deliver greater transparency as to how and where products are sourced – authenticating if they’re ethically or sustainably sourced.
Medical applications
Keeping patient records secure while sharing specific information with various doctors, specialists, pharmaceutical companies and health insurance companies is challenging. The potential for blockchain to improve security in record keeping exists and could benefit the medical profession.
Blockchain, a real opportunity for tech?
The question is, if blockchain is set to be a major trend, and key opportunities for development have already been identified, should tech companies be looking for ways to take advantage of this? If skills are limited and in demand, could developing a team of blockchain specialists be worthwhile?
On the one hand, the initial investment may be high but if the trend proves true, it could deliver a good return over time. The challenge is that companies develop talent all the time, and that talent leaves or gets headhunted to other companies. Also, there are already specialists in the field. It’ll be easier for them to expand their offerings into enterprise applications. They have the knowledge and infrastructure in place and it’ll be hard for tech companies just entering the market to compete.
Blockchain might be the next big thing, but for most companies it’s still out of reach. Without the specialist skills or the budgets to make it work, they may need to continue to observe from the sidelines. For now.
