Blockchain applications are not yet widespread, but here are three business models that will be affected and three hurdles to adoption that blockchain must overcome.
Blockchain is one of the hottest IT topics today. This hype is furthered by speculation about cryptocurrencies, which has a tendency to overestimate the future potential of the technology.
In order to strip away the noise, overpromising and confusion of what the technology really is and its impact on businesses in the coming years, let's look at three business models that blockchain will affect and three hurdles that must be overcome for wider blockchain adoption.
The premise of blockchain is that it enables distributed trust, meaning that it should be easier to do business with people we trust. Historically, people developed this trust by doing business with people they knew. Then, we evolved to doing business with entities with a trustworthy track record, such as governments, companies or brands. More recently, we have started to trust people via intermediaries that have either vetted the third party (and back this with some type of guarantee) or provide transparency into that party's trustworthiness and reputation.
Surrounding these relationships, there are organizations and structures that help to verify and audit. The system works fine most of the time, with low overall instances of fraud, but it is still a world where "caveat emptor" is king. While blockchain doesn't change the concept of distributed trust, it does afford buyers much more trust in the information that they use to make buying decisions.
Three business models that blockchain adoption will affect
One of the key words used in connection with blockchain is immutable -- meaning unchanging over time. In regard to blockchain, information recorded on a blockchain is unable to be changed. This means that, if you are getting information from a blockchain source, you can trust the lineage of that information.
So, let's consider how this low-cost trust and blockchain adoption will affect three current business models.
Trusted intermediaries. The first and most obvious impact of the trust revolution will be for organizations that serve as the trusted intermediaries. As the cost of providing trust falls, the need for these organizations declines, as does the amount they can charge for their implied trust. The financial services sector may feel this the most because of the significant value-add for existing businesses that largely comes from their delivery of implied trust to transactions.
Marketplace intermediaries. The second major impact will be for organizations that play a role in gathering sellers together and providing assurances to buyers on the quality of their products. These are typical marketplace companies, wholesalers and distributors. Both horizontal and vertical blockchains have the capability to fill these trust gaps. Think of the title and history of a piece of real estate. If this was all recorded on a blockchain, then the buying and selling process would be much quicker. And why rely on the middleman if you can get the same level of trust directly? The role of these intermediaries may evolve rather than disappear, however, as some of the current players may also become curators of the blockchain.
Newly enabled businesses. Finally, blockchain will have an impact on the new business models that are enabled by its technology. E-commerce and mobility are examples of platform capabilities that helped to create new business models, such as Uber. What processes that are driven by trust could be revolutionized by blockchain? It's likely that some first applications will be around the legal title to high-value assets that are currently difficult to trade quickly, such as real estate transactions.
Three hurdles blockchain adoption must overcome
Aside from purely technical issues, problems that affect blockchain adoption will inevitably arise.
Blockchain updates. The first and most critical problem focuses on how blockchain is updated to ensure that the total history of something is recorded. If this task is still left to humans, it is possible that some of the key historical elements will not be recorded properly, but avoiding that will require a level of integration of IT into processes that doesn't exist today. It also means we will likely see the first examples in use cases where blockchain updates are performed by a machine.
Data quality. Another major adoption challenge is the quality of data being added to blockchains. The fact is, in most organizations, this just isn't good enough, and there could be major problems if the wrong content was entered into a contract managed by a blockchain. For example, if the terms of a contract are recorded in the system incorrectly and this data is added to a blockchain, it will be much harder to unpick this than with current systems.
Real-time updates. The third problem is the need for real-time updating, which is lacking in many organizations. As companies operate in real time and expect information flow to offer real-time updates, it is not valuable to a business to update a blockchain hours or weeks after an event. To achieve this real-time state, organizations will need to identify which processes currently run in batch, such as price updates, and then plan how these can be transformed to be made in real-time data.
Ultimately, blockchain is a technology that is able to provide the core capability of trust to business operations and transactions, which is often either lacking or implied (but not guaranteed) in many of the digital interactions that take place today. Hype aside, blockchain has the ability to make existing business models operate with less fraud -- as long as the foundational data is correct -- and to help produce some new and exciting ones.