Bitcoin peaked just south of $20,000 USD in December of 2017. That rally alone drew new found enthusiasm for cryptocurrencies amongst the public. However, what’s even more exciting than cryptocurrencies, is the technology that enables them: blockchain.
This technology possesses the potential to reshape business, government, and finance as we know it. Many of the world’s most innovative and influential companies are positioning to adopt this technology now. In this article, we’ll explore the practical applications of blockchain and how to implement this revolutionary technology in your business.
What is Blockchain?
Simply put, blockchain is a decentralized ledger. When a transaction occurs, networks of computing nodes verify it. No single entity validates or controls transactions made on the blockchain. Each record on the ledger creates a block, which are secured using cryptography. The blocks are linked to one another using cryptographic hashes, and reference the previous history.
The chain grows more secure with each increase in linked blocks. Essentially, retroactively manipulating a blockchain transaction would require collusion from the entire network and decrypting each subsequent block. This system adds security and transparency for transferring value but also for the creation and storing of records.
Blockchain Implementation for Business
Blockchain presents a plethora of opportunities for security, transparency, and efficiency for organizations globally. It can serve any situation where value or information is transferred or shared and make certain third-party entities obsolete. Blockchain can also be utilized in smart contracts. Once parameters of the contract are set up, it can be executed autonomously as clauses are enforced until conditions are met. The smart contract nomenclature can be misleading. Smart contracts aren’t limited to legal contracts; the logic can be used to execute any kind of database operation that would normally require a third party or centralized authorization.
Ultimately, blockchain is a disruptive technology that will help companies save time and money and improve transparency and security. While some organizations will become obsolete as a result of blockchain going mainstream, other new business ventures and opportunities will arise. Blockchain has the potential to create an entirely new economy of scale and add new career opportunities much like the internet did in the 1990’s and early 2000’s.
Levels of Decentralization
Before implementing blockchain systems within your organization, consider the level of decentralization that’s appropriate for what you are trying to accomplish. When companies or governments launch blockchain systems, they typically look to implement closed blockchains versus public blockchains. The more centralized a system is, the more trust is required between the participants. Centralized systems are primarily the status quo in most companies.
As systems become increasingly decentralized, the more computing power is required. According to EY, there are three general levels of user types in hybrid blockchain ecosystems; read, write, and validate. In fully decentralized blockchain systems, all participants maintain full access to the ledger. Fully decentralized systems rely on the economic incentive of tokens for participants to validate transactions.
Applications of Blockchain for Business
Blockchain has the potential to enhance almost every area of business. While the technology is still in its infancy, experts emphasize some of blockchain’s low-hanging fruit as finance, supply chain management, accounting, auditing, manufacturing, and healthcare.
Supply chain management serves as an all-encompassing example for a blockchain business case. The movement of goods, financing, and documentation across international borders can be complex and place burdens on centralized parties. Blockchain, when integrated with systems, IoT devices and customer-facing interfaces, can help facilitate global transactions with limited intervention and secure record keeping. Implementing blockchain in supply chain practices will also help improve accountability of suppliers and vendors and product safety for consumers.
Blockchain can ensure security in any instance where sensitive information needs to be transferred, stored, or verified. EY emphasizes that blockchain peer-to-peer networks could potentially replace clearinghouses. Additional benefits include standardizing record-keeping, streamlining auditing and compliance, all of which will ultimately lead to organizational savings.
Identify a Use Case for Your Business
Prior to embarking on blockchain implementation, identify your company’s use case for the technology. Identify, clarify, and organize the functional requirements your systems need for implementation and scaling. Articulate the significance of the blockchain system for each user impacted by the change.
How will blockchain add value to your organization?
Many companies are exploring blockchain out of curiosity, but need to clearly pinpoint how blockchain will add value to their customers or drive internal efficiencies that contribute to the bottom line prior to investing.
Once the use case is outlined, a budget, deadlines and project parameters should be defined. If your company plans to outsource blockchain implementation, you will want to utilize your use case as a guide to finding the right vendor.
Partnering with Blockchain Vendors
Will your company look to vendors to implement blockchain systems or will you develop them internally? If blockchain plays a pivotal role in your corporate strategy, then you may want to consider hiring for blockchain expertise even if the bulk of the project will be outsourced. It’s important to maintain blockchain knowledge in-house for system maintenance, scaling, and evolution.
Proof of Concept
Develop your proof of concept for stakeholders before testing and full implementation. A proof of concept is documented evidence that a technology will work and will prove successful. It provides stakeholders an opportunity to identify challenges and risks associated with the new technology prior to going live. The proof of concept will also corroborate your use case in a tangible manner.
Testing and Field Trials
After evaluating your proof of concept, your organization should decide whether or not to pursue blockchain implementation. If the decision is made to proceed, companies should conduct field trials by deploying blockchain to a limited level of customer-facing or internal systems. That way, systems can be easily scaled back, should major technical issues arise. When launching any new form of software or system, it should not interfere with major day-to-day operations or servicing customers.
Full Implementation of Blockchain
Full-scale implementation follows successful field trials. As of early 2018, very few organizations have reached full-scale blockchain implementation. The majority of companies implementing closed or public blockchain systems are either in the use case, proof of concept or field trial stages. Companies running on fully implemented blockchain systems will realize gains through obsolescence of third parties and overall increased efficiencies. Their customers will also reap benefits through improved visibility and better API experiences.
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