There’s no doubt that blockchain is a hot topic, with management consultants and blockchain experts routinely featured as keynote speakers and panelists at numerous industry events.
You can frequently hear: “Before you go in front of your board or executive team, come up with a business case for blockchain.” Perhaps you might have heard this variation on the theme: “Don’t try to sell the technology, it has to be about the business problem that blockchain solves.” It is a common practice to repeat this mantra every time a new technology starts to show promise and everyone starts to jump on the bandwagon. It is particularly difficult to address these questions in the context of blockchain, which is why consultants and enterprises keep fumbling around for a business case.
Blockchain is a transparent, immutable ledger of contracts embedded in digital code that cannot be altered. It is a shared database that timestamps every transaction that occurs. Blockchain enables direct exchange of value between A and B without the need for the middlemen — be it a central authority, broker or notary.
However, despite all the technological advantages it offers, in its purest form, blockchain may not have a place within the confines of an enterprise.
Most enterprises today already have a digital record and signature for every internal process, task and payment that can be identified, validated and stored by their own staff, lawyers, bankers and accountants. The company’s employees and service providers use existing digital technologies and databases to perform these internal tasks rather efficiently. A hybrid version of blockchain implemented with the sole objective of decentralization is most likely to face an uphill battle when trying to improve on existing tasks and processes that already work well.
In theory, blockchain and digital currency don’t have to present themselves as conjoined twins. However, the synergy between blockchain and digital currency is in how they power each other.
It is the digital currency that fuels an ecosystem based on the open and decentralized nature of blockchain and enables the sought-after network effect. Blockchain, in turn, eliminates the double spend problem that makes digital currency, well, a currency. It would be hard for a closed, company-tailored system to justify having its own digital currency.
Enterprises can deploy private blockchains without having to issue a digital currency since they don’t have to incentivize internal participants (the network) within their own ecosystem. The real question is, what’s the point of deploying a blockchain without a native currency? There are elements of digital currency which make blockchain immutable or censorship-resistant. You can alter a private blockchain if you have more processing power than the owner of the blockchain, but it is impossible to do that when you have a native digital currency fueling a public blockchain.
The public ledger is too big and too distributed — it has no single point of vulnerability or failure. Blockchain can be used to eliminate players who expect unreasonable remuneration for serving as “trusted third parties.” It enables secure and instantaneous peer-to-peer execution of contracts and value exchange.
It is meaningless to think these contracts have a place between two parties within the same enterprise where the internal protocols, rules and processes form the basis of a trusted, enclosed system.
Many businesses act as trusted intermediaries within an ecosystem and have shareholders, such as employees and executives working towards growing the profitability of the business.
If blockchain eliminates the need for a trusted third party by creating a trustless system of smart contracts, those existing intermediary businesses will think twice about using blockchain. After all, why would a business shoot itself in the foot? Even some newer businesses, such as Uber and Airbnb, which have disrupted traditional trust authorities, can be disintermediated by trustless systems enabled by blockchain. The question that businesses should be asking is this: “Are we extracting an unfair value for our intermediary services?” If the answer is yes, “What should we be doing to ensure our survival in the face of this rapidly approaching tidal wave called blockchain that can potentially disintermediate us?”
Companies could very well use blockchain when conducting business with other enterprises or consumers of their goods or services. However, when a company uses a public blockchain to execute smart contracts with other companies, any data that is part of the smart contract is recorded in the public ledger. Obviously, exposing such data is a big no-no for most enterprises.
So, what happens next? Several businesses come together to form a consortium on the blockchain, allowing data access on this blockchain only to the members of the consortium. In effect, they put a private blockchain in place, most likely without the use of a native digital currency. If the only motivation is to use blockchain as a decentralized database, it’s going to be very difficult to come up with the proper justification.
Blockchain is for the masses, and masses don’t need a business case. If you had asked Facebook or Google for a business case in their infant years, they would have most likely given a puzzled look, saying “What business case?”
Blockchain is for Main Street. Wall Street is nervous, and it is investing in and investigating blockchain. Some businesses have become aware that blockchain can disrupt their role and status as trusted third parties. When Main Street starts relying on software and smart contracts as trusted third parties, it could be game over for entrenched interests.
Not only is blockchain for Main Street, but with blockchain, it is all about technology. It is decentralized blockchain technology that disintermediates trusted third parties to create trustless systems that directly benefit the masses. It is immutable blockchain technology that disrupts existing businesses and crushes the incumbents. It is blockchain technology that makes things better, faster and cheaper. Companies and businesses that design or adopt new innovative technologies lead and leave behind those companies that don’t. It has never been truer than today with blockchain.