There are few technologies with as much potential to revolutionize how organizations conduct business as blockchain. The ability to utilize distributed ledger technology to promote disintermediation, reduce costs, speed transactions, build trust among partners, and tamp down on potential fraud offers substantial appeal to business leaders, board members, and technology executives around the globe.
However, a healthy dose of caveat emptor is required as your organization embarks on its initial forays into blockchain. Yes, it’s incredibly exciting, but it’s also incredibly over-hyped. While nearly every organization can benefit from blockchain adoption in some way, not every application or business process makes sense for blockchain. In fact, even organizations that have successfully adopted blockchain and seen impressive results acknowledge that a blockchain implementation can be complex and cumbersome to roll out.
In other words, “your mileage may vary.”
What you and your organization will discover–if you haven’t already–is that your success with blockchain is heavily dependent upon which use case you decide upon as your initial deployment. Picking the right use case will probably be the most important factor in determining how much business value blockchain delivers–or if it delivers any value at all.
It’s probably good to take a step back and give you a very quick overview on what blockchain is, what benefits it can provide, and what challenges you may encounter in your adoption process.
Pretty much every businessperson on the planet has heard blockchain technology associated with cryptocurrencies, particularly bitcoin. And while bitcoin’s ups and downs have been well documented, it’s easy to be distracted by the noise around bitcoin to miss what blockchain can do for organizations not dealing in cryptocurrency.
In a nutshell, blockchain is a database–a distributed ledger, actually–that is spread out over multiple computers rather than deployed on a centralized server. On paper, the entire description of a distributed ledger sounds exactly like what most people think of when they envision a blockchain. However, the blockchain is just one particular type of distributed ledger. The name blockchain also refers to how “blocks” are added to the chain, which contains transaction records. To make the chaining of blocks possible, the blockchain uses a cryptographic signature, known as a hash. In this sense, it is indeed possible to use a blockchain as a ledger, which can be shared with anyone and everyone.
What makes blockchains so intriguing is how it’s much more than just a simple data structure. It’s possible to use blockchain to determine rules for a transaction or even to create a smart contract. If there are two variants of one block, a unanimous decision is made via consensus algorithms. The function of consensus decides which block is accepted and which block is rejected. It enables interactions as value transfers without a need for a coordinating agency or intermediary, such as a bank or a clearinghouse.
This makes it easier to prevent fraud in the form of identity theft and other forms of cybersecurity risks, as well as offering the key operational benefits of faster transactions, greater transparency among transactional partners, and creating permanent records for compliance, governance, and legal requirements.
That’s a big reason why organizations as diverse as the World Bank and the U.S. Defense Advanced Research Projects Agency are diligently examining what blockchain can do. Already, blockchain has been successfully deployed in a raft of applications outside of cryptocurrency, including insurance claims processing, mortgage loan applications, clean energy, and agriculture, just to skim the surface.
So, is blockchain something your organization should take seriously? Absolutely. Should you be evaluating the technology and engaging experienced service providers in proofs of concept? Without question. Should you put blockchain into your most valuable production systems?
The truth is, blockchain is not necessarily an ideal solution for every application and use case. As I mentioned earlier, it’s not easy to implement, and it’s not like your technical teams or your usual IT service providers have a wealth of experience with the technology. The good news is that a consortium of blockchain service providers–referred to as the “R3 Consortium” after its technology founder, R3CEV–is helping to create technology and deployment standards, and acts as an invaluable resource in the development of proofs of concepts to help organizations determine if blockchain is right for them.
Proofs of concepts and so-called “sandbox” demonstrations of blockchain’s capabilities are great to help organizations push their imagination on how the technology may help them solve business challenges, improve transactional agility, cut costs, and root out fraud. But just because something works as a proof of concept doesn’t automatically translate into the ideal use case in a real-world environment.
For instance, if your organization is in a rapidly changing industry and its data governance and compliance issues change regularly and frequently, then blockchain’s potential benefits might not fully materialize over time. But in the vast majority of industries there are specific use cases where it makes a lot of sense, especially when business requirements include increased transparency, hyper-accurate tracking, or the creation of permanent records.
I’ll give you a few examples where I’ve seen it work:
- Automotive manufacturers are using it for fractional ownership of their cars, helping to track who is using the vehicle from the standpoint of billing and insurance activation.
- Global financial services firms for faster, near-instantaneous and far less expensive settlements of ACH processing.
- Voting transactions, where eligibility is verified immediately and votes are cast, tabulated, and reported in a flash.
- Patients’ protected health information data stored in electronic medical records and information is shared in accordance with regulatory mandates without exposing the entire health record.
Obviously, I’m very bullish on blockchain, and I think it can be great for your organization–if your business leaders, board members and technical executives do their homework in determining which use cases should be targeted.
As usual, it helps for business leaders to ask their CIO and CISO a few fundamental questions when the topic of blockchain adoption comes up, such as:
- What is the business benefit we’ll achieve with blockchain that we can’t achieve with our existing systems?
- How do those benefits align with our overall organizational key performance indicators?
- Where are we going to get the technical and business skills necessary to evaluate, select, and implement the technology, and to measure its contribution?
- Is this initial use case scalable in its ability to act as a springboard for other, related use cases without having to re-invent the wheel?
Again, don’t get carried away by the hype. Blockchain is a tool–a very exciting, high-potential tool, but a tool nonetheless. Find out the best way and place to use that tool, experiment with it, practice it until you get good at it, and find the best place to deploy and measure it. In the end, I’m quite certain you’ll be glad you made blockchain a key part of your digital transformation.
Ryan Fay is global chief information officer at ACI Specialty Benefits, a global leader in employee benefits solutions.