How Blockchains will impact your business

The blockchain was invented 9 years ago to eliminate the need for trusted third parties. Should you ever doubt that, look at the first block in the Bitcoin blockchain, in which anonymous founder Satoshi Nakamoto stored a message, linking to this article:

Only now, 9 years later, a lot of people are starting to wake up to the potential of blockchains. Corporates across all sectors are eagerly looking for use cases in their industry. Many of them are middlemen themselves.
• Some are worried that they will eventually get replaced by a blockchain.
• Others are convinced blockchains are just a piece of technology, there for them to leverage and reap the benefits.
So which one is it? Will blockchains replace you or strengthen you? Should you use a blockchain and if so, should you create one or use an existing one?

As part of my job, I help businesses understand this. In this post, I answer the following questions:
1. How much time do you have until blockchain technology gains traction?
2. Will your company get replaced by a blockchain?
3. Should you use a blockchain?

More time, but a harder challenge

Luckily for most organisations, they have time to learn more about blockchains before seeing an impact in their financials. Developing decentralised infrastructure is relatively slow compared to the speed at which startups develop their business.
Startups are often required to move fast and break things, but decentralised networks can’t afford to do that, as coordination is slow (assuming they really are decentralised). As a result, blockchain adoption is slower too.

The flipside is that the disruption that blockchains bring is far harder to deal with than new players entering your market. In theory, you can fight new competitors over the space they are trying to enter, by building your own digital products and services with better pricing, features and service.
Blockchains on the other hand don’t exist to take over your market share, but to disintermediate any businesses in that specific space. This means there won’t really be a whole lot left to fight for and many businesses may eventually need to pivot to generate new revenue streams.

I don’t think blockchains will replace banks for example, I do think they are going to gradually eat away at the payments revenue that banks generate. This forces banks to adapt their business model to generate new revenue streams. If they’re unable to, they will shrink in size or die, like we saw in other industries before them.

Will you get replaced by a blockchain?

Before you start freaking out, most middlemen won’t get replaced by a Blockchain for quite a while. Some people will try to make you believe it will be very soon, I’m not one of them.
Coming from a Bitcoin background, I’m more sceptical about what blockchains should be used for. I love talking about the opportunities with clients and guiding them in understanding and using the technology, but only where it makes sense to do so.

I work independent from any technology provider, so I have no incentive to try to sell companies on anything they shouldn’t use. This doesn’t mean you should sit idle and revisit the topic in 5-10 years though. You need to start watching the evolutions in your sector and the entire blockchain space. If we focus on just blockchain businesses, there is a lot happening across the board these days.

Hyperblockchainisation

Over the past year, blockchains have been spreading to every industry and vertical imaginable. Many startups that are using a blockchain for X have emerged.
While most wouldn’t get a cent in funding from Venture Capitalists, many of them have been raising millions in funding from the uneducated and speculative public, through their Initial Coin Offerings. It’s the .com bubble all over again.

The hype creates a false sense of adoption: Just because a startup raises dozens or hundreds of millions through an ICO, that is no guarantee that anyone will use the product or service, if it ever gets delivered. Nobody is being vetted and public investors generally don’t do their due diligence.
For the record, I’m fine with alternative funding sources to Venture Capital, but I think the vetting that VCs do based on their business expertise is important and useful. Even if it’s not VCs handing over the money, it is still valuable to get feedback on your business plan from people who understand how to build one. The next 5-10 years will show us how valuable.

The public isn’t entirely dumb

That’s not to say nothing of value can come from ICOs. The smarter ICO investors I’ve seen have a simple thesis: If the market keeps throwing enough money at decentralised application development, eventually there should be a killer app that makes up for all the failures, which will make Ether skyrocket in value. (Ether is the cryptocurrency on the Ethereum network, where most ICOs get launched)
While that sounds logical, I personally remain unconvinced, as I see no real problems being solved. Even when serious problems do get tackled and technological challenges are overcome, there is still the challenge of adoption.

Blockchain adoption

As famous entrepreneurs like Peter Thiel and Elon Musk have said: for your startup to succeed in a saturated/competitive market, your offering needs to be way better (10x) than the alternatives. Decentralisation naturally comes with a worse user experience, so the benefits must outweigh that experience.

In the case of Bitcoin, the benefits of being your own bank outweigh the bad user experience for millions of people, especially those who are unbanked, those who are tired of paying absurd fees for money transfers or those who live in countries with hyperinflation. For most of the world however, the experience of having full responsibility of their money is terrifying, especially if they don’t understand what makes that financial system work (not like they can explain the current one anyways).

So let’s take another case, let’s put Airbnb (or any marketplace) on a blockchain. This is entirely feasible in terms of technology, but does this solve a big enough problem?
You cut out the 5% fee that Airbnb charges, but that’s a fee nobody minds, because it is still cheaper than the alternative (hotels). Additionally, when you’re travelling abroad with a fully planned trip and your host doesn’t answer the door, you want Airbnb to fix it and to better vet its hosts in the future. Very few people are going to be willing to use a platform like this. If we get to the point where Airbnb is widely trusted and frequently used by the average person, then this could change.

A word of advice for corporates: Keep an eye on the Blockchain startups in your industry, but don’t panic (unless you’re into finance, then definitely panic). We’re not ready for the decentralisation of things (DoT). People inherently can’t help but defer responsibility to others and it will require a big shift in society before the DoT takes off. And that is completely ignoring all the technical challenges in making them work and scale in the first place.

Your blockchain disruption checklist

As mentioned at the beginning of the post, Blockchains were invented to replace trusted third parties/intermediaries. To quickly find out whether that is you, you can ask a few simple questions:

1. How high up on the list is my company to get replaced? Do we have fair practices? Are we transparent? Do we offer real-time services?
If the answer is no to one or multiple of those questions, your defence mechanism should be to become fair, transparent and real-time. If it’s not the blockchain forcing you in that direction, other evolutions will. For some businesses this may result in cannibalisation, but it’s better to do it to yourself than to be forced by others.

2. Have the technological challenges been solved that are required to make this case work at scale? How much time do we have left?
Blockchain scalability is an incredibly hard challenge, but I believe it will eventually become a non-issue. There are too many bright minds working on promising solutions today, so then it will become a matter of getting society to accept decentralised models.

3. Is part of the market ready to shift to a peer-to-peer model in this case?
The reality will probably be a mix of centralised and decentralised models existing alongside each other. Some people will never want to deal with peer-to-peer practices, just like some people will never want to shop online, get on a plane, be driven by a self-driving car or have their brain uploaded to the cloud.

Time will tell if we manage to succeed at the DoT at a meaningful scale. By watching Bitcoin and non-blockchain peer-to-peer initiatives, you will be able to gauge the adoption rate and whether people are ready for these initiatives yet. Now to wrap up the post, I want to address the #1 question businesses ask me.

How can we use a blockchain instead of getting disrupted by one?

You can find thousands of 'blockchain use cases' in just minutes, most of them sound great in theory and don’t make any sense in practice. I obviously can’t go through them all here, so I’ll touch on a few important points instead:

Don’t try to own a blockchain
If you’re the administrator of a blockchain, you fundamentally misunderstand what a blockchain is and how it should be used. The whole idea is to make middlemen obsolete, so if you plan to use a blockchain, it must be as an equal participant.
That means you need to get over a tough hurdle: you need to let go of having full control of your IT systems. You need to work together with other organisations and trust that they will secure their end of the blockchain well. In a time of hacking and poor security practices, that’s hard.

Blockchains aren’t for data security, but integrity
There is a strong misconception that blockchains help you keep data secure, they absolutely don’t. Storing data in a blockchain can make it harder to tamper with, depending on how that blockchain is secured. Theft on the other hand is much easier, as instead of one entry point, there are now many. You’ll thus only want to use blockchains to store information that isn’t sensitive, as mentioned in my GDPR & Blockchains post.
So to use a blockchain in a meaningful way, you need to find a use case for having a single-source-of-non-sensitive-truth, which no single entity should be able to alter. It’s a complex issue and in my eyes not a very constructive way of looking at it. It’s like walking around with a hammer, looking for nails.

Start with problems, not solutions
A better approach in my opinion is to start with the major problems that your organisation has and then considering all possible solutions. There is a chance that using a blockchain will be the solution, but you’ll likely find many other solutions as well.
Through this approach, you always end up with results and solved problems, regardless of whether you use a blockchain or not. I know how abstract this is, so to not leave you enlightened but unsatisfied, I’ll give you a use case.

Data integrity
A major problem for every organisation is to ensure that you store the correct data.
Over the past decades, countless measures have been taken to improve this situation and a blockchain can help out. It allows you to prove that information existed in a certain state at a certain point in time, without using a middleman. This practice is known as Timestamping. To do it on a blockchain, you have to:
1. Create a digital fingerprint (known as a hash) of your data.
2. Store it in a blockchain that is incredibly tamper-proof, so you can relate to it at a later point in time.

Implementing timestamping in any organisation is a simple and elegant, quick-win solution, which doesn’t even require you to build a blockchain. If your organisation absolutely wants to use a blockchain, this is one of the easiest ways to start with near direct, major efficiency gains and cost savings.

Sam Wouters houdt op 21 maart een lezing op de DW&BI Summit in Utrecht over de invloed van Blockchains op Data & Business Intelligence.