Entrepreneurs should take a cautious look beyond the hype surrounding blockchain and assess the true capabilities of the innovation at this early stage in its development.
In theory, blockchain has enormous potential for business applications. However, once you see beyond the holy grail hype of blockchain theory, you may experience a sobering epiphany.
Since Satoshi Nakamoto’s 2008 unveiling of the technology, researchers have supported blockchain as a viable security solution in a world where humans are struggling to keep up with technology.
All the numbers add up on a whiteboard, but so far applying the technology as a security solution has proven much more challenging than conceptualizing various use cases.
A blockchain-powered future
Hypothetically, blockchain could disrupt information management across a range of industries. The technology can enable enterprises to manage data with heightened efficiency and transparency.
What blockchain currently does well is shift trust from people to technology. However, it will never eliminate the need for human intervention. Any practical application of blockchain must work with some variant of traditional information management.
The decentralized nature of blockchain considerably enhances data security. Also, because blockchain does not incorporate identifying information, it’s inherently anonymous. Moreover, there’s a built-in trust component with blockchain because of the decentralized network of computers needed to resolve its complex algorithms.
In logistics, for instance, supply chain companies could use blockchain to track the movements of goods from manufacturers to the end-user. The technology would also simplify the transfer of shipments.
Alternatively, manufacturers could use blockchain to ensure quality assurance and conduct investigations with ease. Also, blockchain could prove useful for accounting because it protects data from tampering. It produces an audit trail that personnel can trace easily.
In a recent Deloitte survey, 39 percent of responding executives expressed their intent to invest at least $5 million into blockchain development. But is that too much faith in blockchain?
According to Alan Amling, blockchain expert and teaching fellow and University of Tennessee’s supply chain management program, industry 4.0 technologies, including blockchain, are redefining business processes in the digital economy. Whether $1 million, $5 million, or $10+ million is the right amount of investment depends on the size of the company and the issues and opportunities they need to tackle.
“I think blockchain will be one of those ‘Wait… wait… wait… wow, that was fast’ innovations and companies need to be ready. As standards for public blockchains become implemented, a rising tide will lift all boats. When that happens, you want to make sure you have a boat,” he says.
Pay no attention to the man behind the curtain
For supply chain and logistics managers specifically, how much trust should they put in blockchain? Amling suggests that companies should trust but verify.
“Many companies are taking the pragmatic steps of conducting pilots to understand the technology and the highest payback applications. Now we’re beginning to see positive ROI use cases appear, especially in private blockchains. However, there are still many blockchain applications that could be better served by existing technology.
The highest payback applications tend to be those that include sharing data with a vast network of parties, where data provenance and audit trails are highly valued, and all parties can agree on the rules for sharing access.”
Technology issues aside, there’s another problem regarding the commercial application of blockchain technology. Initial coin offerings (ICOs) are a way that businesses can use bitcoin to raise capital.
Blockchain isn’t yet a mainstream technology—however, plenty of snake oil dealers who use the technology to make billions using fraudulent ICOs. Resultantly, you may want to think twice before staking a corporate claim on the bitcoin landscape.
So far, the blockchain vertical isn’t delivering as desired. Of 43 major blockchain ICOs, not one has successfully created a product, and according to the first annual Cryptocurrency Anti-Money Laundering Report, cybercrimes executed using digital coin exchanges surged from $125 million to $356 million in just six short months in 2019.
In theory, blockchain is a phenomenal innovation. In practice, however, the technology isn’t entirely living up to its reputation—at least not yet.
Going forth with blockchain
The blockchain industry is still in its beginning stages. Resultantly, enterprises have yet to develop ample best use cases for the technology.
However, companies that experiment with blockchain without a quantifiable definition of success will fail to reap a return-on-investment, according to a report published by McKinsey and Company business consultancy. Accordingly, decision-makers must determine why they are investing in blockchain development before beginning research.
For some enterprises, the studies conducted by their industry competitors provide a foundation to begin with. For answers, stakeholders can examine the limited research and development information of their industry peers. While there is limited data available, some early adopters have at least established the relevancy of the technology for their vertical.
Also, it’s not necessary for blockchain to replace human mediators to generate value. A blockchain-powered future will most likely always require human mediators—albeit in a diminished capacity. For now, blockchain provides value in that it reduces costs, rather than completely transforms enterprise business models.
Furthermore, analysts forecast that the deployment of blockchain at scale is still years away. To date, companies have found a considerable challenge in scaling up to a full-size live environment where humans still have sufficient control over transactions. In this matter, there’s a valid cause for blockchain research and development for most enterprises.
Blockchain deployment by industry
Around the world, business leaders want to know how they can leverage blockchain to gain a competitive advantage. Despite obstacles, blockchain technologists are making remarkable research and development breakthroughs.
Companies such as American Express, Visa, MasterCard, and Goldman Sachs have all invested in blockchain R&D. In the automotive industry, manufacturers are researching blockchain deployments for autonomous vehicles, electric-powered mobility, and other applications.
The Toyota Research Institute, for instance, is leading in research for using blockchain to decentralize the trade of autonomous vehicle data. A breakthrough in this area will make it impossible for dealers to rollback odometer mileage.
In aviation, Airbus—as part of the Hyperledger Consortium—researched blockchain for jet plane part tracking, and Air France is conducting blockchain research to track maintenance supply chains and workflows.
Maersk is researching blockchain for logistics monitoring, and in telecom, industry leaders are researching ways to deploy blockchain to manage the rapid proliferation of Internet of Things (IoT) devices.
The IoT universe is expanding rapidly, but security for the network of connected devices lags far behind. Meanwhile, Cisco is experimenting with blockchain as a way to verify the identity and trustworthiness of IoT devices.
Recent years have resulted in a fast upshift of blockchain research and development activities. Analysts forecast this trend will continue.
Rather than conduct pure experimentation, however, enterprises now want to learn how to extract strategic value from the technology. As more studies conclude, blockchain will most likely go mainstream as researchers produce clear and tangible results that they can relay to non-technical executive managers.
As the race to leverage blockchain wages on, more organizations with aligned interests will join forces to figure out how to make use of the technology. Very soon, the bodies of work resulting from blockchain R&D will enable enterprises to address critical pain points and compete on yet another tear of technological excellence.