The blockchain is very often only associated with cryptocurrency but much more is possible. Where exactly is the business value for companies?
Research among nearly six hundred companies, commissioned by Avanade, shows that the interest for blockchain is large, but that at the same time organizations do not know what the possibilities are. It is a buzzword that at the moment is causing unrest rather than enthusiasm: ‘We have to do something with blockchain, but what?’
Digital appointments and unchangeable transactions
It goes without saying that new technology is only interesting if it solves a problem or streamlines a process. In order to assess whether this is the case, knowledge of the most important properties of blockchain is essential. With blockchain technology, third parties may in some cases be superfluous because it offers non-repudiation (irrefutability). It works on the basis of consensus among participants about the agreements made, compliance with which can be enforced digitally.
A big business advantage lies in the removal of intermediary links, so that the margin becomes higher and there is a less external dependency. In addition, blockchain contributes to fewer errors in the chain, through incorrect decisions or management based on incorrect information. After all, the current information is shared directly with everyone in the chain. It also becomes cheaper to carry out transactions because less coordination is needed – the agreements and rules are clear to everyone. The costs for settling disputes will therefore also decrease. And because the ownership of the data is much more transparent, the risk of fraud is considerably smaller.
A well-known example of where blockchain can have a major impact is the payment product of banks. Now you still need the bank as a central party to transfer money. If financial transactions take place on the blockchain, such a central party is no longer necessary because you can provide proof that you have received or sent money in a transaction. There can not be any discussion about this in any way because of the irrefutability that is decided in the blockchain.
This is potentially also disruptive for parties such as the notary and the Land Registry. But blockchain is also used, for example, in food for products of which it is important that the origin is known, because otherwise, for example, no quality mark is granted. Or think of valuable goods such as diamonds that the end user also wants to know is a fair product. Another application is in identity management, where the owner of the data determines which party can view his personal data. This can be used, for example, to speed up the border passage at airports. So there are already a lot of initiatives and possibilities that are being researched.
The agreements within the blockchain can be recorded in smart contracts. These are enforced electronically. Suppose you have a certain type of car that is sold by a dealer. Regular maintenance must be carried out here. Various parties are involved in this value chain: the manufacturer, dealer, consumer, garage, demolisher, and recycler. Each party has the right to perform a specific set of actions on the dates of the car. The dealer determines which specifications the car must have. The manufacturer has the right to put the car in the blockchain. The garage may only log which parts have been replaced and what the mileage is. The owner of the car can add notes, the insurance puts claims on the blockchain, etcetera.
Less chance of fraud
This is a big difference between the central databases that are now used for recording data and transactions. Their roles are assigned with an associated level of authority, but it is inevitable that the database administrator, for example, has access to data that are not actually necessary for the performance of his or her duties. Think of the hospital in The Hague where staff members looked at the medical file of reality star Barbie without any reason.
If that data had been on the blockchain database, the owner of the data could decide who has access. Everyone is, therefore, the owner of his piece of data on the blockchain wallet, or that in this example is now a patient or possibly a doctor who can view part of the file and log treatments. Detecting a possible leak is then quite easy because one of the people you have added has done it.
The transparency that blockchain transaction offers ensures that there is less risk of fraud. You can complete all the steps in a process that led to the current situation. Once committed, a transaction can no longer be adjusted. Nobody can hide.
In short, if more parties share data and are jointly responsible for that data to be correct, then blockchain is an interesting technology. It is applicable to every supply chain. We already mentioned products for which it is important to determine the origin and processing, such as fair trade chocolate or meat that has a certain quality mark. But also for parties that want to digitize sensitive data securely, blockchain technology is a good option. Think of the electronic patient file, voting at elections or tax returns.
Then there is the category of companies that simply do not know that there is a problem. An example of this is the third party that keeps track of what has been delivered of each energy company. That ‘administrator’ is seen as inevitable, a historical fact, while blockchain can make this third-party superfluous. Thinking about blockchain requires a new mindset where you go to the core of your business to see where you can remove links and optimize processes.
Challenges: privacy, uncertainty, legislation
One of the results of the research was that only 5 percent of companies are already working with blockchain. Lack of knowledge is the main reason why the possibilities are not looked at. Three quarters is interested but sees bears on the road. For example, legislation, uncertainty and data privacy are mentioned as obstacles.
It is true that there are some challenges associated with the use of this technology. To start with the legislative issue: blockchain is so new that we do not know if and how it will be regulated. In addition, the legal validity of smart contracts is not yet clear, because jurisprudence is lacking.
As far as the uncertainty is concerned – it is mainly due to the lack of knowledge (60 percent says they do not know enough about blockchain) and the fact that blockchain is a complex technology. This can easily be solved by hiring external expertise and raising the level of knowledge.
The privacy issue is a question of good conditions. If you do not record well in the agreements who has which rights, then the privacy of the owner of the data can indeed be harmed. That is, therefore, a matter of setting and recording good conditions. This can be more easily tuned on a private blockchain than on a public one. Bitcoin is actually a ledger that is accessible to everyone, so all transactions that are done are by definition clear to everyone.
That is why most companies work with private blockchains, where the participants know each other and set the conditions together and only they can view the data within the blockchain ledger. Chain integration is therefore of great importance. The more partners join the blockchain, the greater the added value.
How do you determine whether blockchain is interesting?
Our experience is that with the help of a design thinking workshop you can get well over the water what the problems and challenges are for a company where blockchain could help. The blockchain technology is potentially very disruptive, so such an exercise is almost always worthwhile.
Once the processes and problems have been identified that you can solve with blockchain, you follow the usual process of working out and testing the business case and building a prototype. We work with techniques such as Microsoft Blockchain Workbench that deliver quick results.
The prototypes assess you on proof of concept (is the idea feasible?), Value (is there a market for it?) And technology (does the technology work as expected?). If it shows that the idea is technically feasible, wanted and valuable you can start building the application. With this method, you will quickly gain insight into how the solution works, what it looks like, what it can do and whether the intended users are waiting for it. And should it unexpectedly turn out that blockchain is not the solution, then you have quickly learned that and learned a lot.