The blockchain hype is going strong, and many organizations are clamouring for a piece of the pie.
In fact, at the recent Singapore FinTech Festival 2019, the Monetary Authority of Singapore, JPMorgan and Temasek announced the successful development of a blockchain-based prototype that enables multi-currency payments to be carried out on the same network. This is a great example of how blockchain can create economic value by making cross-border transactions faster, simpler and safer.
However, companies that understand blockchain today are few and far in between. Most current applications of blockchain in business are either frivolous or ineffective in maximising the true potential of the technology. Blockchain is a highly specialised tool that requires very specific conditions to thrive and bring value for businesses. While most people associate blockchain with cryptocurrencies, this is just one of many use cases.
Here are five top tips that can help businesses make the most of blockchain:
Tip 1: Implement blockchain where it makes sense – in an ecosystem
Blockchain cannot and should not be pursued on its own. For blockchain to truly thrive, it must be implemented on a large scale and across an entire ecosystem. Everyone across the value chain must be represented in order for the information encoded in the blockchain to be useful.
However, any blockchain applications today are individual company efforts with limited impact. Multiple companies developing their own proprietary blockchains also runs against the nature of blockchain which, at its heart, is a decentralised record of data.
The used car ecosystem is characterised by a lack of trust between the multiple parties involved (buyers, sellers, manufacturers, insurance companies etc.) who must agree on varied pieces of information about the car such as mileage or accident reports before transactions can be made. Here is where blockchain comes into play, i.e. to bring all the information together and create trust and efficiency through increased transparency.
In addition to being implemented in an ecosystem, blockchain initiatives should be kicked off with a long-term view and firm c-suite commitment across all the stakeholders involved. This is important along every step of the journey – from conceptualisation to implementation – as blockchain necessitates the sharing of information across the industry.
Tip 2: Ask yourself if you really need the technology
Blockchain is not a Swiss Army knife that can be used for any and every task, but a surgical scalpel, meant to be used with precision for specialised missions. Hence, businesses must first look at their current operations and assess if blockchain is even needed at all.
One of the central pillars of blockchain is that data is shared across multiple nodes and with multiple parties that work together to reach a single point of truth. In situations where no central governing authority is available to verify data, blockchain enhances trust.
However, if a central authority that all parties trust is already available, then blockchain simply isn’t worth the effort.
For example, let’s take a real estate scenario where a property owner must verify the credentials of a property agent. The owner could turn to trusted government authorities that license property agents to verify any claims the agent makes about their work. In this case, it doesn’t make sense for a property firm, for example, to establish a blockchain with this same aim.
Tip 3: Make sure you have these four components before exploring blockchain
On the technology and operations side, all blockchain initiatives require four key components. Businesses hoping to dive into a blockchain implementation must be willing to provide or have the ability to provide the following:
- Digital identity – an online or networked identity adopted or claimed in cyberspace by an individual, organization or electronic device
- Smart contracts – a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties
- Trust – an ability to audit transactions and ensure that they are validated in order to instil confidence in the process
- Governance – mechanisms that maintain protocols and ensure that all participants within the ecosystem act responsibly
These four components help bring blockchain initiatives together and maintain operations. If one of these is unavailable, businesses should reconsider blockchain.
Tip 4: Stay compliant with data privacy and cybersecurity laws
Businesses must ask themselves if the information encoded in the blockchain will be for public or private use and decide from the start if they are going to pursue a public or a permissioned blockchain.
Blockchain’s key feature — information transparency — can also be its biggest downfall. It allows everyone across the value chain to share information and collaborate with other stakeholders. However, it also means that information is public for everyone to use, and potentially abuse. Blockchain’s properties of immutability and data decentralization may contradict data privacy regulations like GDPR. The onus then falls on companies to ensure compliance with such regulations.
At the same time, businesses must assess their own system for potential vulnerabilities before taking the next step forward with blockchain. With cyber incidents becoming more prevalent, hackers will eventually find a way to hack blockchains, despite the technology having the potential to help enterprises tackle cybersecurity challenges such as maintaining data integrity, detecting tampering and increasing operational resilience. This involves having third-party security audits, implementing robust digital identity management systems and developing a culture of cybersecurity awareness among employees to minimise any potential loopholes that attackers can exploit.
Tip 5: Ensure scalability
Any business idea needs to be scalable to succeed, and blockchain is no exception.
Because blockchain is so specialised and the nature of every industry is different, it is difficult for blockchain to become an everyday solution for enterprises to readily deploy in their operations. This is also why blockchain solutions are usually purpose built for the task.
Blockchain might seem daunting when businesses first start exploring the technology. It is also important for organizations to avoid falling into the trap of implementing blockchain for the sake of it. By following these five tips and being rigorous in finding the answers to questions on business and ecosystem needs, organizations can create real value from blockchain.