Blockchain? Is this the technology your business needs?
The blockchain technology has been getting a lot of attention lately for its industry-disrupting capabilities. As a result, many industries are falling over themselves to try and incorporate the blockchain.
However, should all companies use the blockchain?
What are the things that one must consider before incorporating the blockchain? In this guide, we will try to answer all those questions.
Why are Companies So Hyped Up About the Blockchain?
We have talked about Blockchain basics a lot of times on this site before. So, to give you an extremely short description. A blockchain is, in the simplest of terms, a time-stamped series of immutable record of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain).
The reason why the blockchain has gained so much admiration is that:
- It is not owned by a single entity, hence it is decentralized
- The data is cryptographically stored inside
- The blockchain is immutable, so no one can tamper with the data that is inside the blockchain
- The blockchain is transparent so one can track the data if they want to
As you can see, it makes sense as to why companies are interested in incorporating the blockchain. In fact, Juniper Research asked employees of some big companies (with >20,000 employees) whether they are looking to incorporate the blockchain. This is what they found out in the survey:
57% said “Yes” while only 9% said “No”.
In fact, 76% of the employees quizzed said that blockchain could be ‘very useful’ or ‘quite useful’ for their company.
All signs point towards a great level of adoption. However, there are some things that these companies must consider first before falling victim to FOMO.
If It Works, Don’t Fix It
There are many companies out there who are desperate to incorporate the blockchain despite the fact that they have perfectly good systems in place. The idea that “everything should be decentralized” is wrong.
Let’s take the example of Amazon.
Amazon is a multi-billion dollar e-commerce giant and the biggest factor behind their growth is their UI/UX.
Think about this, if you order something on Amazon, you will get it within a day. If you don’t like it, then they will take it back within a day and give you your refund. Plus, with drone services coming in, in the near future, you will be getting your product within an hour of ordering!
Why would you want to disrupt such a great service by incorporating a new piece of technology that you have no experience with?
More often than not, if you are looking to increase the efficiency of your company, the answer may very well lie in reworking certain legacy-based solutions instead of jumping onto the blockchain wagon. Remember, systematic change is better for the overall growth of your company than to simply jump the gun.
Now don’t get us wrong, there is no doubt about the fact that the blockchain technology has lots of brilliant use-cases. However, most of these are still in the theoretical or pre PoC stage. Most of the companies who are using the blockchain are simply dealing with the unknown here.
If you really think about it, a blockchain is, in its essence, a decentralized and more secure database and there are multiple forms of its implementations. You have:
- Public blockchains: Open blockchain where anyone can join and be a part of the network.
- Permissioned blockchains: a Closed network where existing nodes must vet the participants before making them a part of the network
While the public blockchain has many useful qualities, the fact is that it is simply not ready to handle huge amounts of transactions and data, which is a primary requirement for these companies.
On the other hand, we have permissioned and even private blockchains (private blockchains are owned and controlled by one single entity). These kinds of blockchains have gained immense traction and interest in various industries like finance. However, according to critics, private and permissioned blockchains are needlessly fancy implementations of a shared database.
As of right now, there are far simpler implementations of a shared database that one can incorporate instead of a blockchain.
This is where a company must ask itself new questions. Should they go for an alternative solution or should they bet on a technology which is still relatively young and may need few years to fulfill the promise that it is already showing?
So, when should you look into incorporating a blockchain and when shouldn’t you?
Is your company dependent on a third party for all its operations? Is this third party burning a hole through your pocket? Do you need to have a clear audit trail for your company to make sure that everything is in its place?
If yes, then a blockchain is a good idea for you.
However, does your company deal with huge amounts of data where time and speed is paramount, then the blockchain may not be the best solution, at least for now.
Before incorporating the blockchain, it may make sense to calculate how much it will cost. There are three specific areas that we’d like to bring to your attention.
Mainframes and Blockchain
A big thing that a lot of people are talking about is that banks will be able to reduce a lot of operational costs because of blockchain integration. However, Jason Bloomberg points out something rather interesting in his Forbes article.
The fact is that big financial institutions like banks run on mainframes. Instead of making mainframes obsolete, the blockchain is actually turning out to be the reason for banks to increase their mainframe investment. IBM is also following the same path.
Speaking of IBM’s actions, Allan Zander, the CEO of DataKinetics said, “IBM’s approach, however, seems to have already stolen the march somewhat over AWS and Azure by providing centralized updates, Global 24/7 Support – and – the ability to run analytics on the Hyperledger itself – all the while making use of the tremendous processing power and practically zero downtime of mainframes. On balance – and IMHO – the IBM offering in this regard currently provides a far greater degree of comfort in choosing which platform provides better reliability and support.”
It is not clear whether this mainframe-centric blockchain approach is going to be extremely cost effective or not.
However, the reason why these mainframes are needed in the first place is that of the blockchain’s scalability problem. If your company is going to deal with a lot of throughputs, then this is definitely something that you should keep in mind.
Let’s not beat around the bush here, Bitcoin sucks up a lot of power. According to Bitcoin Luxembourg, the cost per transaction of Bitcoin since the beginning of the year is somewhere between $75 and $160. A major chunk of that is because of electrical costs.
As Chris Haley, Corporate Strategy Director at ICF, and Michael Whitaker Vice President of Emerging Solutions at ICF point out, “A business case for blockchain must account for a host of potential costs beyond hosting, licensing, and implementation. Energy costs may rise tremendously as the transaction volume increases. On top of all this, a buffer for unknown-unknowns and perhaps a ‘complexity premium’ should be added.”
Cost of Storage
In order to comprehend how much storage on the blockchain will cost, one must keep certain things in mind.
Firstly, the blockchain is an ever-growing database which will only grow bulkier with time.
Secondly, each node in the network maintains the blockchain by downloading all the data continuously to their computer. This is why, the storage costs may be manageable in the beginning, but it can get exponentially high over time.
A possible solution that many people have looked into is cloud storage since, at first glance, it is low cost and has a highly scalable storage option. But, as Jamila Omaar, Internet Policy Intern at Interplanetary Database (IPDB) Foundation points out, “A blockchain database must store data indefinitely, so the [cloud’s] recurring payment model doesn’t work.”
In fact, it is estimated that the long-term storage cost per gigabyte for a Bitcoin node will exceed $22 million, based only on current transaction costs.
IPDB are working on a possible solution, however, according to them, “It’s hard to build a decentralized system that is strong enough to govern itself without falling victim to re-centralization.”
So, can the blockchains ever be truly cost-effective?
Yes, but in its current state, not so much. The fact is that the majority of these blockchain initiatives are in a POC phase and it is far too early to tell if they can be effective or not.
One area where blockchain usage can be extremely helpful is business operations. This topic can be an entire article by itself, but there are some areas that we can definitely explore for now.
Remember that blockchain is both transparent and immutable which helps in creating a permanent record of transactions. This is why it is very simple to follow a paper trail in the blockchain for internal (and governmental) auditing purposes. Because of the immutability, the accuracy of the data is guaranteed.
Another place where blockchain can help with the business operation is the quality assurance of the product. Since the blockchain is transparent, each and every part of the chain can be closely scrutinized and investigated.
An interesting place where this is being used in the food supply industry. As Mike Almeida the president of Empire ATM Group puts it, “Events like a salmonella scare could be traced back to the source in seconds, and every single bag from that batch would be flagged for removal whether it be freshly packed in the processing plant, in a truck being delivered or in the retail store already. This system could notify everyone involved in seconds rather than days.”
Ok, so that sounds pretty good, however, in order to make this work, there is one thing that you need to take care of. The training of your employees.
Think about it, can you make sure that your business operations will go off without a hitch if your employees are completely clueless? So how do you make sure that your employees are blockchain savvy enough for your business to go off without a hitch?
As George Levy puts it, there are two key groups of employees that you’ll need to train:
- The managers in your company need to be in touch with the basics of the technology so that they know how it is going to change the processes.
- Your software developers and IT cell must have the coding skills necessary to build and maintain the blockchain.
There is no other way to put it, the managers and leaders of the various division in your company need to learn about how the blockchain works. Eg. the managers of your supply chain should learn how the blockchain works to understand how it is going to disrupt your industry.
Your developers and IT folks need to understand how the blockchain works and how they can develop on it. First and foremost, they need to understand what smart contracts are and how they work. Smart contracts are automated contracts. They are self-executing with specific instructions written on its code which get executed when certain conditions are made.
You can learn more about smart contracts in our in-depth guide here.
Smart contracts are how things get done in the Ethereum ecosystem. When someone wants to get a particular task done in Ethereum they initiate a smart contract with one or more people.
Smart contracts are a series of instructions, written using the programming language “solidity”, which works on the basis of the IFTTT logic aka the IF-THIS-THEN-THAT logic. Basically, if the first set of instructions are done then execute the next function and after that the next and keep on repeating until you reach the end of the contract.
Along with that, you will also need to hire developers who are already well-versed in blockchain development to help kick-start your company’s transformation.
So, let’s recap and see what Thirdly you will need to hire a blockchain developer
- Finally, on a more psychological level, the change could be scary. You need to make sure that your employees are mentally primed to make this jump.
Basically, you will need to make space in the company budget to make sure that your employees are up to speed. This could be a potential a barrier if your budget doesn’t allow for any extra expenditure.
Clients and Customers
Your employees are not the only one who will be affected by this shift. A very real concern that most businesses have is that the blockchain will disrupt their relationship with clients and customers.
In fact, the Juniper Research survey also found out the following two results:
Image Credit: Juniper Research
So according to the survey:
- 35% of the companies think that blockchain integration will cause disruption to their internal operations.
- A whopping 51% feel that it will cause a “significant disruption” to their partners/customers.
We really don’t need to tell you the importance of keeping your old clients right? It is a fact that keeping a long-term client is a lot more valuable than acquiring a new client. One of the most important areas that you should focus on as a business is client relations. As the old saying goes, “Make new friends, but keep the old. One is silver, the other gold.”
So, keeping this in mind, you must ask yourself if it is worth it to bring as drastic a change as the blockchain into your business and then to alienate your clients. Human beings are not really that open to change, and once your clients are comfortable with a familiar style of operations, do you really want to disrupt that out of nowhere? If something drives your clients away, then it surely won’t be worth it right?
Along with the general customer anxiety, there is another for pressing concern.
There are fears that existing customer systems may no longer be compatible with the upgraded, blockchain incorporated systems. These fears about interoperability are not unfounded though, people in the Cryptoverse, in general, are worried about interoperability of blockchains and it is one of the biggest issues that need to be solved along with scalability.
Take Baby Steps
If you don’t have the required resources, nor the need nor the time to build a blockchain business from the ground up, then you can always use some of the tools and solutions that are already out there to create applications without the need of much technical knowledge. The best thing about these solutions is that they don’t cost that much plus it gives you the opportunity to see if it actually works for your company or not. It is like the difference between buying an entire bottle of an expensive perfume or a 5 ml sampler piece.
Many organizations are already coming up to make the blockchain more accessible to the companies. So, instead of completely reworking your infrastructure, this may be the direction you would want to go first.
Remember that the Blockchain is Still Young
The hype behind blockchain is pretty unreal as of right now.
In fact, recent reports suggest that companies that add the word “blockchain” to their names have seen their shares jump up significantly. In fact, shares in a tiny US soft drinks firm went up by 432% after the company changed its name from Long Island Iced Tea Corp to Long Blockchain Corporation!
This kind of unreal hype does put a lot of unfair expectations on the blockchain.
While we believe that the blockchain is a great innovation, it is by no means a magic button. It is not going to change a bad business idea to great, let’s be clear about that.
The technology is still very young and there are tons of new avenues that need to be explored and improved upon like scalability and interoperability. However, having said that, an interesting feature of the blockchain is that it will become more powerful as it gets more widely adopted.
So, What Should You Do?
We believe in the potential of the blockchain and we believe that majority of the businesses are going to adopt it in the future. However, it doesn’t mean that every business needs to have it in the first place. Don’t decentralize just to join the herd.
You need to take a deep, hard look at your business and consider all the points that we have talked about thus far:
- Do you already have a great business process in place which doesn’t need disruption?
- Will your company be able to handle the costs associated with blockchain integration, especially in the early stages?
- Will you be able to invest in your managers’ education?
- Can you get your whole team up to speed with this shift?
- Can you get amazing blockchain developers?
- Will your team be able to adapt with this change?
- Is your client base strong enough to stay loyal to you through this transition?
- Should you change the entire infrastructure of your company or take baby steps and make a decision?
- Are you willing to risk everything to gamble with this exciting, yet young technology?
Ask yourself these questions before you take that leap.
After that, if you are sure about making this jump, then, and only then, should you go ahead with it.