By Wally Vogel
With all the hype surrounding blockchain, and a short track record of practical business applications to date, it may be tempting to wait and see what others do, or perhaps even ignore it and hope it goes away.
That was the approach Blockbuster took to streaming video in 2008 when their CEO stated that Netflix was “not even on his radar screen” as a competitor1. It did not end well for Blockbuster, which filed for bankruptcy just two years later.
It may be tempting to ignore or dismiss emerging technologies in their infancy, but disruptive technologies can grow quickly and any business that fails to embrace them early does so at their own peril.
Not “that” blockchain
Much of the skepticism surrounding blockchain for business applications are based on assumptions about public blockchains such as Bitcoin and Ethereum, as most of the media attention has been focused on these blockchain-based cryptocurrencies.
Bitcoin, for example, was previously known as the currency of choice for purchases of illicit goods and services, resulting in a negative association. More recently, the initial coin offering (ICO), has emerged as a vehicle for raising money by minting cryptocurrency tokens on a public blockchain, and this practice has attracted a fair amount of skepticism and scrutiny.
However, there are multiple types of blockchain technologies that are very different. Private or permissioned blockchains, Hyperledger Fabric being one of the most popular, aim to overcome many of the concerns businesses would have about using public blockchains by offering true enterprise level security, privacy and processing capabilities.
Misconceptions versus reality
There are four common misconceptions about using blockchain technology for business:
- A blockchain doesn’t do anything a traditional database can’t. The reality is that a blockchain offers several advantages over a traditional database. It provides a shared ledger which is distributed and immutable. What does that mean for business? It means a blockchain can be used to synchronize data between existing databases, therefore reducing redundant data entry, eliminating costly and frustrating reconciliation and providing a permanent record that can be easily audited.
The benefits of blockchain are financially significant. The reduction in transaction costs achieved with it is typically over 40 per cent. In addition, the distributed nature of blockchain can provide superior business continuity and disaster recovery compared to a centralized database with standard backup processes.
- Blockchains are too slow compared to traditional databases. While public blockchains are slow due to the consensus mechanisms employed, the reality is that permissioned blockchains can achieve production-level throughput. Hyperledger blockchains are processing up to 3,500 transactions per second today, with 10,000 transactions per second being a realistic target for the near future.
- Blockchain technology is outside of the mainstream and therefore not well supported. Permissioned blockchain is already in the mainstream. Hyperledger is an integral part of cloud offerings from major suppliers like IBM and SAP; these companies have invested significantly as they understand the transformative power of this technology and the inevitability of its adoption. Ginni Rometty, the CEO of IBM backed this commitment with her statement that “blockchain will do for transactions what the internet did for information”2.
- There are no proven use cases for the efficiency of blockchain technology in production. On this point, skeptics have been silenced by the recent announcement that TradeLens, a blockchain collaboration initiated by IBM and Maersk, now has 94 partners and processed 165 million ocean freight shipment events, with another million being added every day. Since being implemented it has reduced shipping times by an average of 40 per cent3.
How can blockchain make ships go faster? Well, it can’t. However, it can make containers move faster, since those containers often spend more time in port awaiting paperwork or payment than they do moving on ships. The use of blockchain has cut the paperwork handling process by a factor of 10, resulting in faster and more cost-effective shipping.
Moving forward with confidence
Blockchain is already ushering in a major wave of change, and Canada is positioned to take advantage of this opportunity and lead the way4. Now is the time to get ahead of the disruption by learning more about blockchain, evaluating its potential impact on your business and formulating an appropriate strategy for the future.
Consider the possibilities. Engage a blockchain professional to bring your team up to speed and to evaluate the specific threats and opportunities for your business. Blockchain is particularly well suited to eliminating friction and improving efficiency in transactions and payments between businesses.
Perhaps a small pilot can get your business started on the path of learning and incorporating blockchain to improve efficiency with minimal investment. Perhaps you will decide to engage in a long-term enterprise project.
Regardless, every business should have a plan to avoid getting swept under by the wave, and hopefully ride it to a sustainable competitive advantage.
Wally Vogel is a payments veteran, a certified engineering technologist and a certified blockchain professional. He has founded multiple software companies specializing in transaction processing for government entities and business enterprises, and is currently serving as a director for Sparcblock, a Canadian company helping businesses streamline B2B transactions with blockchain. You can reach him at email@example.com.
1 Rick Munarriz, “Blockbuster CEO Has Answers”, The Motley Fool, December 10, 2008.
2 Tom Groenfeldt, “IBM’s Ginni Rometty Tells Bankers Not To Rest On Their Digital Laurels”, Forbes, September 28, 2016.
3 Stephen Shankland, “IBM-Maersk blockchain alliance cuts oceanic shipping times by 40%”, CNET, August 9, 2018.
4 Don and Alex Tapscott, “How Canada can be a global leader in blockchain technology”, The Globe and Mail, March 10, 2017.