Blockchain doesn’t generate the breathless headlines that it did before the Crypto market’s 2018 pullback. Yet while market hype has slowed, blockchain has become an essential tool for business—and a technology that companies should ignore at their peril.
So what is blockchain? It’s a distributed ledger that eliminates the need for a trusted central party to facilitate digital transactions, with the following key features:
- Consensus: All parties in a blockchain transaction must agree to the same rules
- Provenance: All transactions are traceable
- Immutability: Once a transaction has been recorded to the blockchain, it can’t be changed
- Finality: There’s only one ledger for the whole network
The basics of blockchain for business
The best way to think about using blockchain is as a “platform” that powers business systems and solutions. In situations where information or assets are exchanged, the question to ask is, “Does it offer advantages over a traditional database or other platforms?” The answer, in many cases, is yes.
Blockchain applications now exist—and are thriving—for transactions, contracts, insurance, supply chain, and even music. Ethereum powers smart contracts that facilitate financial agreements between two or more parties. MineHub helps companies track mining equipment parts. Ripple streamlines international payments, while Civic verifies people’s digital identities when they do things like buy airplane tickets or check in at hotels.
Within a couple years, blockchain will be a small part of many larger enterprise applications, and we will be using dozens of blockchains every day without realizing it.
Still, there are a lot of myths out there about the viability of blockchain for business. Here are seven of the most common ones:
1. Blockchain’s success is directly tied to cryptocurrencies
Even now, 11 years after blockchain’s first successful implementation, people often confuse it with bitcoin and other cryptocurrencies.
That’s understandable, since blockchain was originally developed to support the digital currency. What’s more, blockchain platforms like Ethereum are fueled by proprietary cryptocurrencies. Yet monetizing the cryptocurrency on a blockchain doesn’t necessarily reflect the value of its underlying technology. REP token was used to raise capital for the development of the Augur prediction marketplace, for example, but it is not used for many of the ongoing functions that take place on it. Platforms like Hyperledger and Ripple are not tied to cryptocurrencies at all.
2. There are no successful blockchain projects
If you look at ICO success rates only, it’s easy to conclude that blockchain has been a failure. In reality, there have been many successful blockchain implementations for B2B and internal uses. IBM, Microsoft, Deloitte, and SAP each have multiple live projects.
One recent B2B success is the TradeLens global supply chain solution. This blockchain-powered solution already encompasses almost half of the world’s container shipments and has processed over 500 million transactions. Another recent example comes from Vanguard, which, since February, has been using blockchain technology to manage data for $1.3 trillion worth of funds. That’s one-quarter of its total assets under management.
Cryptokitties and some gambling-related applications aside, however, blockchain implementations so far have seen little success in the B2C space.
3. Blockchain is slow
Bitcoin protocols like Ethereum’s ETH network and bitcoin’s BTC network are often decried as frustratingly slow—and, at times, they are. However, speeds are improving every month, and new protocols like Tron, which is closing in on 10,000 transactions in less than a second, may soon resolve the speed problem. (By comparison, Visa claims that its system can handle 24,000 transactions per second, though in reality, it processes around 1,700 transactions per second.)
In addition, off-chain transactions, in which transactions are not synchronized across an entire distributed ledger immediately, can also greatly increase speed.
4. Blockchains get hacked all the time
Blockchain technology is not immune to attack. However, no major blockchain has been hacked—though exchanges, smart contracts, and apps that sit on top of blockchains have been. In the next three to eight years, Quantum computing may upend that calculus as it moves from promise to reality. However, all encrypted internet transactions will also be affected. And unlike ordinary databases, applications, and the internet at large, blockchains have the flexibility to upgrade through soft and hard forks to stay ahead of security risks.
5. Blockchain tech is the solution to everything
Like many new technologies, blockchain is often applied to problems that are better served by non-blockchain solutions. Chances are, the technology is just one of many potential solutions to the business problem you are facing. As you evaluate it, ask yourself whether a centralized database or simple application could do the same job just as well—and take an honest look of whether it’s worth the effort of bringing in new technology vs. using existing platforms and products.
You should not use blockchain to track a few assets within your company, for example; a simple spreadsheet or database can do that more simply and just as effectively. If, on the other hand, you need to track large sets of assets across many companies and maintain a detailed history for each asset, you should look into using blockchain.
6. It’s easy to find a blockchain expert
Thousands of blockchain “experts” who talk about the technology have neither designed nor implemented blockchain systems. Skilled blockchain resources are hard to find, and they’re also very expensive. By my estimation, there are fewer than 50 very good, experienced blockchain architects in the US.
7. Big businesses are rooting for blockchain
Given how many big companies have launched blockchain applications, you might assume that all but a handful of naysayers are on board with the technology. However, from banking and financial services to database providers and tech platforms, many industries do not want blockchain to succeed any faster than they can get ahead of it.
JP Morgan is the poster child here: in 2017, CEO Jamie Dimon called bitcoin a “fraud.” At the same time, the company was diligently working on creating blockchain payment technologies. And, in 2018, JP Morgan launched Quorum, a bitcoin-like payment system that was built on top of Ethereum and is now supported by Microsoft’s Azure cloud platform.
The US government, meanwhile, has fallen behind other countries on issuing clear blockchain guidance, which is forcing the industry to navigate the different—and often contradictory—laws and regulations for this new technology on its own. As things stand now in the US, you can’t technically issue, send, or exchange a Token or Coin without breaking a regulation or having to report the transaction to the federal government.
Seizing the opportunity
Right now, most blockchain tech is proprietary, but momentum is growing towards aligning around common plug-and-play platforms, development languages, and tools. That’s important, because it will help accelerate the move towards app, interface, and UI creations that happen at the business level, rather than requiring complex software development efforts. And that, in turn, will hasten the use of blockchain-based solutions across the entire business.
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