Beyond bitcoin, blockchain means business

Blockchain is most famously known as the technology powering bitcoin and other cryptocurrencies. It also has a tenacious potential to radically transform finmarkets, health tech, supply chain management, government systems, and drive widespread social change.

At a fundamental level, bitcoin enables secure, reliable transactions between buyers and sellers of goods or services without the need of an intermediary, thus all but eliminating transaction costs. Financial institutions have been early adopters of blockchains, but other industries are expected to catch up with a multitude of compelling and sustainable use cases. Indeed, Gartner estimates that blockchain's value-add to businesses will grow to $176 billion by 2025 which is encouraging for a technology still in its infancy.

The blockchain is essentially a distributed data structure that serves as a shared ledger, recording information in a transparent and verifiable manner without the intervention of a central authority. Transactions are verified and recorded based on consensus algorithms, and cryptography techniques to make the stored records immutable and tamper-proof.

Software developers have taken notice of these advantages and are building self-executing, self-regulating smart contracts that automate transaction execution of agreements between parties once the programmed terms and conditions are met. This is a huge. Consider, for example, an options contract where the individuals involved are anonymous, but the options contract is encoded in a blockchain. A triggering event, such as an expiry date and strike price, automatically executes the contract, in full market transparency for the regulators. More complex smart contracts allow for the creation of new cryptocurrencies. This feature of the blockchain has given rise to the phenomenon of Initial Coin Offerings (ICOs).

In the absence of intermediaries, smart contracts empower individuals to take their own decisions by encoding their preferences in the contract. Second, the documentation is encoded in the blockchain and is always available. Third, the cost savings for each such transaction add up over a period of time, making it much more cost-effective than centralized, dedicated systems that currently prevail. These facts are not lost to enterprises. Blockchain based systems are rapidly transforming how businesses share information, move value, collaborate with each other and create new innovative operating models that enable them to thrive in the decentralized economy.

Today, companies increasingly engage with an ecosystem of external organizations to create and deliver value to their customers. While these ecosystems are often globally distributed, information flow through them is heavily centralized through systems and processes tightly controlled by these companies, often for reasons of security, privacy etc. However, they face numerous challenges such as IP protection, contract management, reconciling data across multiple systems, etc. Billions of dollars are wastefully spent in increased costs, lost revenues and regulatory compliance.

While current systems do not solve these problems, blockchain technology can be seen as the antidote to these challenges. A few ways in which the blockchain alleviates these problems and disrupts the status quo are described below:
Secure data exchange: Companies, their partners and customers can cryptographically secure any sensitive customer, deal or IP information. Governance rules can further fully define who or what [APIs] can access this information. This strengthens data security & privacy while simultaneously making all collaborators more confident in sharing data with their partners.

Easy data reconciliation: The blockchain itself can be viewed as a “shared single source of truth”. It is a secure, tamper proof and unchangeable repository of recorded information and easily solves challenges involving data inconsistencies, duplication and reconciliation.

Efficient processes: A combination of instant access to accurate data, self-executing smart contracts and independence from intermediaries make shared business processes more accurate, efficient and cost-effective.

Contract Disputes: Data provenance, immutability of smart contracts and easy verification of data repositories help minimize or even eliminate potential disputes with customers and other businesses.

Compliance and Governance: Blockchain structure and attributes create a reliable audit trail of processes making it verifiable in real-time. Combining this accuracy with automatic contract execution drives improved compliance and efficient regulatory reporting.

These characteristics of blockchain technology finds immediate and relevant application in use cases across multiple industries: Know Your Customer (KYC) and Anti Money Laundering (AML) compliance in financial services; issuing insurance policies as smart contracts to fight claims fraud; finding counterfeit drugs in pharmaceuticals; identifying and tracking source of defective products in a supply chain; accurately maintaining legal or real estate records; minimizing contract disputes in complex multi-vendor software projects etc. The list of applications spawned by blockchains is literally endless, amplifying the significant potential that this technology extends to businesses.

But, despite the hype, it is important to note that blockchain technology in its current form is mostly suited for ‘public blockchain’ use cases like bitcoin where all the data is public, users are anonymous or pseudonymous, anyone can read and write to it and the performance is not so much of concern. In the enterprise world, the requirements are markedly different – for example, within a business network, all participants need to be identified, data read and write access permissions are role-based and performance demands are exponentially higher than the current levels prevalent in public blockchains. There may be other unique needs imposed by industry regulations, business models and service level agreements etc.

For blockchain technology to be successfully adopted by enterprises at scale, it needs to be adapted to meet their needs. In case of distributed business networks, successful implementations of blockchain technology will need to be sensitive to the various business relationship structures, multi-dimensional business contexts, the need to deliver personalized customer & partner experiences and governance requirements that are essential for the operation and propagation of these networks. There are noteworthy solutions that are in various stages of design and development that are tailored to meet enterprise needs. A breakthrough in these architectures will help fuel explosive growth in blockchain adoption within and across enterprises in the near future.

About the Authors: Rakesh Sreekumar is Chief Marketing Officer at Loyakk & Amanjyot S. Johar is a seasoned executive in the Silicon Valley.

Takeaway: Financial institutions have been early adopters of blockchains, but other industries are expected to catch up.

This post first appeared in the CIO section of Economic Times