Can Your Business Trust a Blockchain Service?
Blockchain is the new kid on the block in the tech world, and it’s taking the neighborhood by storm. Bitcoin’s meteoric rise in the final quarter of 2017 made cryptocurrency a household name, but it’s blockchain’s ability to adapt to many use cases that has made it the darling of fintech and cybersecurity companies.
Big businesses and financial institutions have begun developing their own blockchain solutions in-house, but the costs of development are usually steep and the outcomes aren’t guaranteed. Small and midsize enterprises (SMEs) that want to use blockchain but lack the same resources as the big players would likely rely on third-party companies that offer blockchain services. However, in an emerging tech market where 92 percent of startups fail, how can SMEs know which blockchain companies to trust?
The emerging blockchain industry
Blockchain services solve a wide array of problems that plague the existing financial system and security infrastructure surrounding businesses’ day-to-day operations. Blockchain is a versatile solution that can help secure digital assets, manage multicurrency transactions worldwide and enable all relevant parties to monitor supply chains, to name a few examples.
“Transparency, traceability and security are three of the pinnacle solutions a blockchain can provide to a business or service system,” said Elliot Rothfield, co-founder and creative director of cryptocurrency and ICO index WatermelonBlock. “Blockchain technology is spreading like wildfire; we are seeing an unprecedented level of adoption into mainstream industries like the financial services industry all the way through to more niche markets like gaming, social work, medical research and the list goes on.”
Here’s a look at some of the problems that developers are working on solving with blockchain solutions and platforms.
- Transactions: One of the most obvious uses for blockchain is for transactions. For both B2C and B2B payments, blockchain can be used to both remit payments and record details about the transaction in an immutable distributed ledger that every user has access to. Because blockchain ledgers are decentralized by nature, they are far more difficult to tamper with than traditional, centralized systems. Blockchain solutions even hold the potential for near-instant transactions in multiple currencies worldwide.
- Supply chain management: Blockchain’s function as a distributed ledger is not limited to financial transactions; it can also provide a transparent overview of supply chains to all stakeholders involved. Whether for a supplier, processor, distributor, retailer or consumer, blockchain can enable a 360-degree view of the supply chain from raw material to finished product and from retail shelf to end user.
- Digital identity management: Blockchain solutions are also being employed for digital identity management and verification. A shared blockchain that contains multiple factors needed for verifying a user’s identity could provide a secure way to authenticate users, as well as comply with Know Your Customer and anti-money-laundering regulations, without turning over sensitive identifying information to a third party’s centralized database.
- Smart contracts: Smart contracts are essentially a set of automated actions preset to initiate when certain conditions are met. A common example of smart contracts is payment upon the receipt of a product. Imagine a supplier is shipping several pallets of products to a distributor’s warehouse; a smart contract can be configured to automatically remit payment once the delivery has been recorded on the ledger. Because all parties can view the blockchain in real time, each can verify that the delivery was in fact made and that, subsequently, the payment was triggered and recorded on the blockchain as well.
- Global fundraising: Few aspects of blockchain have been more high-profile, or controversial, than initial coin offerings (ICO) as an investment vehicle for startup financing. While some ICOs have proven to be little more than a scam, others have raised big money to support ambitious projects. ICOs remain unregulated but show no signs of slowing down. In 2017, there were 872 ICOs that raised a total of $6.1 billion, most of which was raised in the last four months of the year. This year, ICOs are easily on pace to shatter those numbers; through the first two quarters of 2018, there have been 886 ICOs that have raised a total of $5.77 billion.
According to Ofir Beigel, general manager of 99Bitcoins, said that while the applications of blockchain are vast, SMEs will likely be slow to adopt the solutions.
“SMEs will adopt blockchain solutions only as needed, and for many existing companies, there’s simply little to no need for blockchain technology,” Beigel said. “Most companies are perfectly served by standard database software, which allows them to control access, quickly record and fetch data, as well as forward that data for processing and analysis.”
Still, Beigel said cryptocurrency and interactions between companies provide good opportunities for SMEs to take advantage of blockchain solutions today. These uses can streamline payments between companies without requiring significant amounts of trust or complex and costly legal processes.
So, if an SME decides implementing these solutions is the right move, the question then becomes “which blockchain partners are worth working with?”
Finding a blockchain partner
While blockchain certainly holds the potential to dramatically change the way business is done throughout the world, it’s hard to know which companies are reliable, trustworthy or well-positioned enough to survive the current Wild West period of the industry. If you’re an SME considering partnering with a company that offers blockchain services, you’ll want to be sure it has both a legitimate solution and staying power.
“For SMEs, blockchain is generally too costly and too immature to deploy at this point in time,” said Jeff Stollman, principal consultant and polymath at Rocky Mountain Technical Marketing. “It is a valuable technology, and learning about it via proofs of concept is appropriate, but few production applications will come to market as more than tests.”
That means SMEs have to be careful when testing the waters. The blockchain industry is full of lofty promises and earth-shattering rhetoric, but the reality is much more uncertain. A report issued by the Chinese government found that, out of 80,000 blockchain projects started since 2008, only 8 percent remain “actively maintained,” while 92 percent were abandoned, partially active or could be considered an exit scam within 1.22 years of launch.
That doesn’t mean SMEs should avoid exploring the blockchain space if they’ve identified a clear need or simply want to investigate what’s out there, but it does mean decision-makers should approach blockchain solutions with a skeptic’s eye.
“Lots of clever technology people are excited about blockchain and are hard at work trying to solve the current technical limitations,” Stollman said, “but this R&D work takes time. So, even though blockchains exist today on a global scale, we are years from having the reliable technology we need for widespread use.”
The blockchain industry is a very exciting and innovative space that has attracted a lot of great minds and high energy, not to mention a great deal of capital. However, SMEs should be aware that blockchain solutions are largely in their embryonic stage and that mass adoption is a long way away. There is no harm in educating yourself on what’s available and what’s in development, but unless you have a clear need for a blockchain solution and are in touch with a company that can offer you demonstrable, verifiable evidence of its capabilities, you might be best served by biding your time.