The news volume on the topic of blockchain is on the rise. This is mainly due to the growth in value of various cryptocurrencies – most notably Bitcoin – which are a subcategory of the Blockchain ecosystem. However, the assumption that “Blockchain equals Bitcoin” is far too simplistic. Blockchain technology is also highly viable for numerous other business processes outside of the financial sector. This article can give you a first impression whether the topic is also interesting for your business.
Blockchain as a puzzle: a visualization
You’ve heard of blockchain, but so far it’s nothing more than a buzzword from the IT finance industry to you? No problem. Let’s break the concept down to a scheme commonly used in everyday life.
Think of a blockchain as an infinite chain of jigsaw puzzle pieces (blocks). Now, this puzzle piece chain is not centrally located in one place that everyone has access to, but in the cloud. Anyone who has generated or acquired a puzzle piece, automatically receives a complete copy of this chain for local storage on their computer.
The connection between form and content of the puzzle pieces is essential. Comparable to the image shown on a jigsaw piece, there is also information stored in each individual block, e.g. details of a transaction. Each block is assigned an individual ‘hash’, which is basically a code of numbers and letters, a digital fingerprint. This hash also includes the hash of the previous block, from which the chain is created.
In our chain of puzzle pieces, the hash corresponds to the respective shape of the pieces, including indentations, protrusions, length, width, etc. of the edges. These pieces are cut in such a way that they fit into each other, i.e. they always contain the shape of the previous puzzle piece at the same time.
© rawpixel / freepik.com
Ultimately, this is the reason for the security of the blockchain. As soon as someone tries to manipulate the content of a block, the hash of the block automatically changes and the chain is interrupted. You can imagine this as if you were to paint a different image on the puzzle piece, which then automatically changes shape so that it no longer fits into the next piece. This piece retains the old shape and the chain is broken. That way, anomalies are quickly detected and can be fixed.
For as soon as a user wants to add a new puzzle piece to the chain, each individual puzzler must first check on their computer to see if the chain is still intact. Likewise, there is a peer-to-peer check on Blockchain and only when this has been checked off as approved by each individual is the new block allowed to be added.
What are the advantages of blockchain?
- Transparency: Even if anonymized, transactions are publicly viewable and this adds an unprecedented dimension of traceability. Every business unit is held accountable to act with integrity, whether that’s to the growth of the company, its community, or its customers.
- Safe & protected network: As an archiving system, Blockchain is far more secure than comparable technologies, as each piece of information is encrypted and linked to the previous one. Blockchain, as explained above, is formed using a complex chain of mathematical numbers through a decentralized network of computers. It is immutable once it exists. This immutable and incorruptible nature of blockchain makes it safe from forged information and hacks.
- Assured traceability: Every time, for example, an exchange of goods is recorded on a blockchain, an audit trail is in place to trace where the goods came from. This helps to verify authenticity, trace a supply chain from manufacturer to distributor, or to provide irrefutable proof of ownership.
- Customized solutions: Due to the fact that Blockchain is still relatively new on the market of digitalization possibilities, there is a wide range of constantly emerging solutions for various business areas. This offers great scope for innovation and growth.
- Cost-saving: Blockchain-based track and trace technology allows you to reduce costs on your end and increase profit margins by cleaning up supply chains, eliminating intermediaries, and essentially ridding the manufacturing process of counterfeit elements and detours.
What challenges are awaiting you?
Clearly, blockchain is still a baby within the IT world. While it is growing quickly and gaining traction, even experts can only make promises based on experience rather than rules. Blockchain’s adoption rate and effectiveness are based on real-world application findings. No one knows the full extent of the beneficial or detrimental effects for each new implementation that is made. Results can vary and as yet, blockchain technology simply does not have a large enough sample size or data for analysis that allow predictions with 100 percent certainty. But there are fields where there are solid opportunities to use blockchain to drive digital transformation.
Where blockchain technology comes in handy
Blockchain makes sense wherever you want to archive something immutably, be it on the topic of real estate, personal identities, proof of quality or traceability upon a change of ownership. This ranges from so-called ‘smart contracts’ to the storage of confidential data, secure elections and the seamless documentation of supply chains.
The latter point in particular opens up great opportunities when proof of origin is necessary, as in the art market for instance. Anonymity and non-traceability are often desired to ensure the privacy of buyers and sellers. Blockchain provides an inherent solution to this need, as the identity of the digital wallet owner remains confidential. The same holds true for tracking quality criteria for the preservation of a transported good (temperature, humidity, etc.) – a useful technology in combination with, for example, IoT technology, especially in the food sector.
The value of blockchain in both the industry and the service sector has long since grown beyond the topic of cryptocurrency. Highly successful examples show that blockchain as a decentralized ledger of supply chains, money or confidential data, provides highly efficient solutions for businesses and society.
Jana Bulkin, CEO of S2BConnected
So-called smart contracts open up a wide range of possibilities in the context of contracting, such as a rental agreement, a real estate purchase or even a vacation booking. All those areas where two parties enter into a contract provide the opportunity to use smart contracts, which are considerably more fraud-proof.
Last but not least, the already mentioned financial sector with cryptocurrency should also be mentioned, which enables unbound transactions outside of national currency units and intermediaries, thus saving unnecessary steps and guaranteeing secure processing.
Blockchain: The answer for every company?
Even if all this sounds plausible for now, you should not rush the decision for blockchain technology. Depending on the industry, it is sometimes more and sometimes less suitable; for example, it is difficult to find added value in construction or mining industries. After all, while the benefits are certainly evident in some subsectors, the ratio between the total cost of implementation and the benefits is not profitable.
Find the right strategy for your business
Before deciding on a blockchain adoption strategy, get clear on your own company’s vision: Who are we and what do we want? The strategy can then be built on this. There are 4 main types:
- Leaders. Companies that are willing to use their leading position to set new standards for their industry in the market.
- Disruptors. Companies that often present themselves in a market where they do not have to worry about stableness, as they do not dominate the market and are practically unknown to the general public.
- Opportunists. Companies that typically wait, weigh their options, and implement the most appropriate technology when it is needed. They are often unable to adopt the leader approach for a variety of reasons.
- Innovators. Companies that could easily adopt the Leader approach, but are motivated simply by seeking innovation or improving their current business model or services.
You can also get a more in depth look at this in the article Strategic Approaches to Adopting Blockchain by our partner Morpheus Labs. The next step is then for you to create your approach to finding suitable use cases and to establich an implementation plan. We are covering this topic in our next article: Blockchain in Use: A 10-Step Implementation Plan
Where the century of digital connectivity brought new opportunities for organizing flows of data, Blockchain does so for flows of value. Blockchain is thus a must-have for any process improver. If you have any further questions or suggestions on the topic, please don’t hesitate to get in touch.