What Does Blockchain Mean for Your Business?
Leading up to our SPRINGBOARD Conference on intelligent systems on October 23-24, 2018 at RTI International, we chatted with Ryan Dennis about blockchain – its potential, barriers to adoption, the hype and more.
What is blockchain?
Blockchain is technology that will allow greater meritocracy across our business transactions and greater transparency than existing exchanges because the ledgers are distributed. Rather than consolidating the ledgers in a single repository – such as a bank – blockchain distributes the accounts and ledgers across all participants. In this way every participant has a record of every transaction, lessening the need for a central authority. A blockchain can have a coin (bitcoin as one example) or not.
There are a number of blockchain solutions from large technology companies like Microsoft, Amazon, and IBM competing with others from companies like Ethereum or TraDove. As with any new technology, there aren’t many shared standards and the blockchain offerings listed above don’t necessarily share the same approaches or solve the same challenges. For example, Ethereum focuses on smart contracts while other blockchains may not.
Blockchains share some common traits, however. They are real-time, transparent, distributed ledgers that are shared by all participants and require little or no governance.
How might businesses use blockchain?
There are many ways that corporations, non-profits, and even governments are using blockchain technology. The government of Dubai has required that every vendor that does business with the government must be able to transact over blockchain by 2020. This is an example of leveraging blockchain and specific Initial Coin Offerings (ICO) to transact business. Non-profits can use blockchain and cryptocurrencies to simplify fundraising. Small businesses can leverage blockchain and bitcoin to raise capital because participants do not have to be financially accredited investors.
Large businesses are exploring many uses for blockchain and cryptocurrencies, from product traceability in a supply chain to more rapid closings of complex financial transactions in situations like mortgages.
What are the risks TODAY?
As I’ve noted, blockchain is new and we are really in the “wild west” – there are few definitive rules and even fewer standards. For example, there has been debate in the U.S. as to whether bitcoin is a commodity, a security or a currency; while that sounds a bit technical, each of these is governed and regulated by a different federal agency. However, the Securities Exchange Commission (SEC) has indicated recently that bitcoin – the cryptocurrency – is a commodity, so it would be regulated under the Commodities Futures Trading Commission rather than the SEC.
While the U.S. is a major economy and may dictate some of the thinking about bitcoin and blockchain, other countries are moving faster. Bermuda, as an example, has passed comprehensive ICO and digital asset legislation, leading some companies to register their businesses there. Estonia has done a lot of work to digitize its government services and uses blockchain in many of its registries – earning the country the name e-Estonia.
CAN YOU SEPARATE BLOCKCHAIN AND BITCOIN HYPE FROM REALITY?
Everybody and everything about blockchain and bitcoin is really early right now. We have rapidly advancing technology that is entering the market before countries can establish laws and regulations. I’d go so far as to say that there are no enterprise tested and validated blockchains today – most of what we see and read about are pilots or experiments.
Also, we run the risk of creating a large number of competing blockchain solutions, which will require a sophisticated middleware or connector from one blockchain to another. Blockchain is still a technology looking for interesting problems to solve, rather than a fully baked application for a specific challenge or problem.
What are the biggest barriers to adoption?
There are a couple of big adoption barriers right now. First is that we are in a land rush – many competing architectures and solutions, many of which solve for different issues. Some have a coin, some do not. Large technology companies and small startups are all competing, but we won’t know the winner for years.
Related to the first barrier is the lack of standards or a governing body. This means that one blockchain may capture more or less data or different data, or manage that data differently than another blockchain. A lack of agreed standards often presents a barrier to industry-wide adoption of any new technology. This leads to perhaps the biggest challenge of all: interoperability.
There is too little research on interoperability between blockchains. In real-time global commerce, we need rapid, trusted transactions across countries and networks. Currently, we are at risk of building a lot of small blockchain cul-de-sacs without the ability to connect them efficiently. If there are competing blockchains, firms will need the ability to exchange data between different blockchains, emphasizing the importance of interoperability.
What’s the timeline for blockchain to become more viable in the U.S.?
At some point, experimentation and competition will reduce the number of competitors and create some semblance of standards. We’ll see this happen over the next four to five years.
My sense that that 2018 will continue to be a year of gaining awareness. Many companies are exploring blockchain and learning more this year, trying to understand how or if blockchain fits in their strategy. In 2019 will be a year full of development and testing – many competing applications will be developed, shifting blockchain from a technology to a potential solution. By late 2020 we’ll see the first viable enterprise solutions enabled by blockchain.
Remember that right now, blockchain is more a philosophy than technology and must become a solution to many business challenges.