Cryptocurrencies like Bitcoin might be grabbing all the headlines, but the potential impact of blockchain in business means you have to dig further than you’ll find in simple discussions of tokens, coins, and ‘mining’. Blockchain technologies are already at work in a range of business settings, across diverse industry use cases, and they have the potential to disrupt business models far beyond their fintech origins.
Blockchain already means business
Blockchains already possess many characteristics that lend themselves well to a variety of business use cases beyond cryptocurrencies. They’re distributed and sustainable; they can reduce costs by removing the traditional role of intermediaries in a business network; they can be used to track assets across a supply chain, with the immutability of their records establishing unchallengeable provenance; and they can be used to automate business processes that span multiple organisational jurisdictions.
Smart contracts have the potential to take blockchain applications much further
The business logic that can now be encoded into nodes on a blockchain network can be used to execute workflow actions autonomously, taking input from data on and off the chain. This capability provides the means to extend business processes beyond traditional organisational boundaries, in interesting new ways.
It also hints at the development of new class of distributed ‘organisation’ that might exist purely within the code on a blockchain, designed to execute tasks and take decisions without human input. However without prudent measures in place to assure smart contract code quality, and provide safeguards against unintended action, it’s unlikely we’ll see any large-scale public implementations of these autonomous organisations in the short term.
Blockchain is evolving, and so are business models
Blockchain technology is already evolving more enterprise-friendly characteristics. Each move sees blockchains further dilute the original Bitcoin vision, but brings the technology far closer to traction in mainstream B2B scenarios beyond cryptocurrencies. At the same time, forward-thinking organisations are starting to evolve their own thinking too, collaborating on projects to test how blockchain might transform the way they do business.
There’s also a growing startup community focused on disrupting whole industries – from peer insurance, through community energy grids, to artist-led music publishing – but we’re still a way off seeing any significant impact from these initiatives.
The time to start exploring is now. You need to understand if and how a blockchain implementation might complement or extend your existing business model, and/or provide cost and efficiency savings. There are few enterprises that have created real industry-scale implementations so far: however, once implementations of ‘blockchain for business’ become more widespread and proven, we expect that new business models powering new market entrants, underpinned by enterprise-scale blockchain technology, will emerge rapidly.
What is blockchain for business?
The blockchain technologies that underpin cryptocurrencies like Bitcoin have the potential to transform the way many organisations work; especially where business processes, access, and control all extend beyond corporate boundaries. As a result, they also present opportunities to fundamentally change the way whole ‘systems’ of work operate, across a variety of industries.
In order to show how blockchain technologies might affect business systems, we first need to look at some of the challenges that organisations face when doing business with each other.
Challenges for traditional business networks
It’s useful to think of all the parties involved in a series of business transactions as being part of a business system; and that the component parts of a business systems communicate, and exchange assets and value with each another, as part of a business network.
In ‘pre-digital’ times, business systems were complicated, expensive and time-consuming to set up and (re)configure – so they tended to be relatively static. However the modern phenomenon of global mass interconnectivity has enabled more and more flexibility and scale – giving rise to more and more diverse and complex ecosystems:
- Business transactions may be co-ordinated across multiple parties, spread across different geographies and legal jurisdictions. Each participant will know some of these parties (and might trust some of them, to a certain extent); however in many cases there well be parties in a transaction that don’t know each other directly at all.
- Transactions may relate to tangible assets (such as land, cars, or food); intangible assets (such as intellectual property, patents, rights controlling access and use of data); or the exchange of data itself.
- Some parties in transactions will be organisations; some will be individuals; and some may be automated, network-connected devices and business infrastructure components.
The cost of oversight and orchestration
Collectively these parties represent customers, suppliers, partners, regulators, government institutions, etc. – each with a stake in the system or market they’re operating in – and in many cases one party in particular will act as an intermediary or ‘controlling central authority’ to ensure that everyone follows the rules. Many of these networks are operated by the dominant force in their own ecosystem – one example is the Universities and Colleges Admissions Service (UCAS), an independent charity that operates the application process for UK universities. However there are others that act as trusted intermediaries operating in a wider industry context – such as Covisint (recently acquired by OpenText), which provides an IoT and Identity platform focused on automotive and transportation supply chains.
Figure 1: A traditional business network
Source: MWD Advisors
However, as figure 1 illustrates, all this oversight and orchestration comes at a cost: in time, money, and the need to develop a trust relationship so everyone’s happy with the arrangement.
Traditionally, a technological solution to managing these market transactions and relationships involves a database ledger – one administered and controlled by arguably the most interested party in the system. These systems rarely operate in isolation, though, and where processes and transactions cross boundaries there’s inevitably friction – which causes headaches (and that costs time and money to fix).
Around 2008, a person (or persons) unknown going by the name “Satoshi Nakamoto” devised a decentralised digital currency called Bitcoin. Bitcoin works on a peer-to-peer basis, where transactions take place between networked users directly (without recourse to a central trusted intermediary). Instead transactions are verified by peer users and indelibly recorded in a shared public ledger that’s distributed around the user network.
Distributed ledgers: creating mutually-agreed ‘sources of truth’
Distributed ledgers, like the Bitcoin blockchain, are replicated, shared, and synchronised digital data stores that are spread across multiple locations (and potentially across multiple organisations, geographies). Unlike a traditional database, there is no centralised store, nor indeed a central administrator or authority overseeing such as store. A distributed ledger is designed to enable parties in a business network, who don’t necessarily fully trust each other, to form and maintain a consensus view about the state of the data stored on it. For this to work, the parties involved need to be connected on a peer-to-peer network; and they need to agree to abide by the decision algorithms deployed to ensure consensus. This way, the version of the ledger synchronised across the network is taken as being the mutually-agreed system of record (and the de facto source of ‘truth’, as far as network members are concerned).
It’s the potential of distributed ledgers (blockchains) to be employed as alternative systems-of-record in business networks (see figure 2) that makes them so interesting for us here.