Publication | ThinkSet
Blockchain for Business: Applications, Implementation, and Innovation
Ron Schnell and Michael Canale
Businesses stand to save billions by embracing blockchain technology. Here’s what they need to know
We hear it all the time: how will the recent decline in cryptocurrency prices impact blockchain?
The blockchain is a digitally distributed, decentralized public ledger that facilitates the recording of transactions and tracking of assets in a network; these assets can be tangible, like a car or land, or intangible, like patents. Put more plainly, blockchain technology provides “a way for untrusted parties to come to agreement on the state of a database, without using a middleman.” While cryptocurrencies do operate on blockchain, the technology itself has applications that go far beyond Bitcoin, Ethereum, and alt coins, involving an array of different types of digital assets.
Global spending on blockchain technology is projected to reach nearly $19 billion in 2024, at a compound growth rate of nearly 50 percent. More than 80 of the world’s top 100 public companies are using it in some form, be it for insurance contracts, supply chain management, vaccine distribution, fraud prevention, or other use cases. Blockchain will drive Web 3.0 by empowering users to own (and monetize) their data and assets. And as the metaverse takes flight, blockchain technology will be foundational in enabling decentralized applications—ranging from games to businesses to virtual events and more—that power an economy of user-owned digital assets and data.
Understanding the scope of blockchain’s use cases and risks, however, can be an obstacle to successful adoption. Here’s what business leaders need to know.
Applications of Blockchain in Business
Companies stand to save millions by implementing blockchain technology. For instance, a survey of eight global banks found that blockchain technology could reduce the average annual cost of clearing and settling transactions by $10 billion, while another recent study found blockchain could reduce supply-chain related costs for businesses in Western Europe by $450 billion.
Below, we provide an overview of some top applications for blockchain:
- Smart contracts
Smart contracts—blockchain-based programs that automatically implement terms of multiparty agreements when a certain external event triggers it to go through—have numerous applications, from insurance contracts and supply chain management to financial data recording, copyright management, clinical trial tracking, and property ownership transfers. With fewer intermediaries and less independent processing required by each counterparty, the amount of time spent during a transaction can go from days to minutes.
The smart contract space is evolving quickly and often involves new algorithms that exceed the knowledge of those who use them. To avoid surprises, someone who understands the language of smart contracts must review code before it is put onto the blockchain. These audits, which involve a detailed analysis of the contract’s code to identify security issues and incorrect coding, also should take place after deployment.
- Digital assets and nonfungible tokens
Digital assets encompass all items that are uniquely identifiable and recorded on a cryptographically secured distributed ledger (blockchain). The best-known digital assets are nonfungible tokens (NFTs), which represent ownership or proof of authenticity of a unique item or piece of content. While fungible tokens like Bitcoin or other cryptocurrencies are interchangeable with one another, each NFT is one-of-a-kind—and cannot be replicated or exchanged for something else on a one-to-one basis.
NFTs have made a huge splash in the art, fashion, and entertainment industries since they prove unique ownership of an asset using the blockchain. The financial world is also experimenting with NFTs and other types of digital assets to tokenize or represent traditional securities, such as stocks, bonds, and alternative assets. This could create more interoperable capital markets and allow investors to pledge a wider range of tokenized equities at whatever hour they see fit. For instance, JPMorgan Chase is leveraging NFT technology to transfer collateral settlements after the market closes.
Real estate players are getting into NFTs too, as these tokens can represent land, title, maintenance, tax, and other records, thereby streamlining the buying and selling process.
- Streamlining internal infrastructure
Blockchain-based infrastructure could eliminate the need for manual aggregation of data, improve processes like regulatory reporting and audit documents, and help decommission legacy IT infrastructure. By replacing these cumbersome, outmoded processes with decentralized blockchain technology (as opposed to a centralized database), organizations can create more transparency, security, and efficiency.
For assets and documents that do not need to be decentralized, there is also the concept of “private blockchain.” These chains are cryptographically secure but do not exist on a public blockchain infrastructure. This can be particularly useful for items that require both extra protection and provability.
- Fraud prevention
Banks onboarding new customers need to undergo a burdensome (and costly) know-your-customer (KYC) process to verify their identities. By utilizing blockchain technology, a customer could prove their identity once and then bring that proof with them to other service providers, thereby speeding up the process.
The Risks of Implementing Blockchain in Business
Despite its far-reaching benefits, blockchain is still a work in progress. Here are three key risks organizations may face in their implementation of this nascent technology.
- Integration can be difficult
Moving to new blockchain-based market infrastructure is operationally challenging, and integration with non-blockchain systems can be complex. Businesses have to choose the right chain to build on, determine the return on investment (ROI) of transitioning to a blockchain-based infrastructure, and then source the right talent to program those changes—all while blockchain developers are becoming increasingly hard to come by.
- Smart contracts are not foolproof
Smart contracts can encode intricate business, financial, and legal arrangements on the blockchain. Yet smart contracts have suffered exploits due to improper programming, unexpected actions from users, and poor business logic.
Organizations will have to institute robust testing and adequate controls to mitigate the risks associated with blockchain-based business processes. Notably, when a smart contract has coding defects, the exploit cannot be reversed—even if the contract itself can be updated to close the exploit.
- Intellectual property protection
If you’re going to use a public blockchain, your IP is available for viewing and copying by others—though as of yet, the copyrightability of items on the blockchain hasn’t been tested in the real world.
As a result, you can’t have IP on public blockchain and expect it to be protectable as a trade secret (i.e., it is no longer secret). However, using a private blockchain or other methodologies might help further protect your IP.
What Businesses Need to Know to Implement Blockchain
Replacing existing business processes with blockchain technology isn’t a simple task. It requires thoughtful planning, including cost-benefit analyses, selecting the appropriate use cases, market analyses, security controls, and more.
In a space filled with potential—but also scams and noise—now is the time to undertake the proper due diligence to understand the possible opportunities and challenges of implementing blockchain into your company’s operations.
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