Amid the bitcoin excitement that has exploded in the past several years, blockchain's most innovative uses have become overlooked. Built upon a network of distributed trust, blockchain represents an advance that will have larger-scale business significance than the digital currency that initially popularized the technology. By prioritizing and piloting new applications of blockchain in their organizations, IT and technology leaders can use blockchain to better position the larger business in its ongoing quest to uncover new sources of competitive advantage.
Before discussing uses of blockchain it’s important to set aside the hype and understand what blockchain really does. It’s a digital ledger where transactions are recorded on a distributed framework to enable the secure, validated tracking of transactions between untrusted and unknown parties. As a digital ledger, it contains the exhaustive list of all transactions that have occurred between the users of the blockchain (since its creation). This ledger runs without any intermediary, providing an immutable record updated in real time by its users. This happens two ways:
- All transactions are sent (called blocks) to everyone in the network. This is key – everyone that is part of the network gets EVERY transaction.
- The network is also kept in check by its miners. Miners are members within the blockchain ecosystem that solve complex mathematical problems with high computing power to validate each transaction. Transactions are then timestamped and added to the chain in a linear, chronological order. Each block is confirmed, cleared, and connected by reference to the previous block, in turn forming a chain across the distributed ledgers. Each perpetually time-stamped block prevents anyone from changing the ledger.
At its core, blockchain is fundamentally a distributed (across people, machines, organizations) ledger that validates and stores transactions, so they cannot be changed once made. It is not, in and of itself, a data storage technique – it is massively too slow to permit that.
Mechanics aside, how does blockchain enable business? This technology has the potential to reduce costs anywhere the transfer of value occurs—particularly where the transfer is between two unknown or untrusted parties, thereby translating to greater efficiency for organizations. So how can you move past the hype and explore real possibilities to use blockchain for enterprise-scale innovation?
We’ve observed several compelling use cases for blockchain technology across key industries:
We’re all familiar with points programs. As leading hotel brands—and their associated loyalty programs—merge, blockchain eases operational friction when creating, redeeming, or exchanging points. Rewards providers can manage the customer use of points, but the customer sees only a single digital wallet – a vast improvement in customer experience. Points earned on a credit card might be used to receive airline points and purchase a flight, and then also used to purchase hotel points and book a hotel. To the customer, these points are accessed via the same digital wallet, instead of logging in/transferring from one system to another. This is particularly useful for the travel industry where points cross corporate barriers (think the relationship between airlines in the same travel network or airlines that offer point redemption for rental cars and you begin to sense how this will make the information sharing easier).
Blockchain also reduces the cost of onboarding and integrating new organizations that provide points to which the overall network will have access. By using the same blockchain for multiple rewards providers, the cost of onboarding is eliminated. Even if that user doesn’t have an account, the blockchain will store their transaction history, and the rewards can be collected at any time. If you think of this in context of two hotels merging rewards programs – Marriott doing so with Starwood and Ritz-Carlton in April 2018 – you begin to get a sense of how a distributed ledger can remove inter-application friction across corporate firewalls.
Blockchain is well positioned for the reinsurance industry where they are engaging in proportional contracts. In this example, rather than having to build and maintain complex integrated systems to maintain contract and transactional data, the underlying contract between the various parties can be stored in the ledger together with all related premium receipt and payment transactions. This allows the ceding company to more efficiently and effectively store and distribute the premium data and the reinsurers to receive it. The main thing to note here is the removal of operational friction through automation. Because the contract and premium information is already stored and verified, reinsurers can more seamlessly interact with ceding companies.
Telecom providers can use blockchain technology as a source of identity and authentication, in turn, generating new revenue streams. Blockchain gives these organizations the unique ability to validate devices on their network, their physical location, and confirm that the device is not lost or stolen. Smart contracts handle the approval and provisioning of permissions, all within a single, highly auditable solution. In the IoT space specifically, organizations can create individual blockchain-based ledgers to credentialize new devices on the network, so that new devices don’t create open/unsecured/public networks within a home network.
As blockchain continues to emerge as a game-changing solution to business problems, here are the steps you can take today to prepare your organization to capitalize on the blockchain revolution:
- Familiarize yourself. Become familiar with aspects of the distributed ledger technology, including hash functions. With an understanding of hash functions, other concepts such as tamper proofing, digital fingerprints and provenance, will be easier to understand. Leaders should also equip themselves with an understanding of Merkle trees, as this serves as the foundation (and future) of blockchain technology. Finally, it’s important to understand what it takes to build a DAPP (decentralized application). DAPPs combine blockchain, smart contracts, and user interfaces to create actionable solutions for users.
- Right-size blockchain for your organization. Review the areas of your business, function-by-function, that can benefit from this transaction-enabling technology. Remember, look for areas where you are trying to enable transactions across multiple, often untrusted, parties especially where such transactions are related to contracts.
- Make it real. Develop a blockchain business story that’s worth the R&D investment. Identify a narrow list of opportunities where blockchain may make sense (opportunity identification). Then look at each opportunity to clearly define the business challenge, process, the value in solving it, and the expected complexity of a blockchain solution (you’ll need an experienced blockchain professional for this last step). If you identify a problem worth attacking, develop a prototype or pilot solution, using agile ways of working, to embrace and incrementally test and learn how blockchain will work for you.
Digital currencies (like Bitcoin) are only the beginning, and industry leaders should be on alert. Blockchain may soon disrupt your industry as much as bitcoin is disrupting the global economy. The technology leaders that start today in planning and strategizing around blockchain will help their organizations redefine what it means to be competitive in their industries.