Blockchain for Business
Introduction
The technology
behind cryptocurrencies like Bitcoin could revolutionize the way business is
conducted.
This technology
is called blockchain—and it’s the backbone technology of Bitcoin and other
cryptocurrencies.
Blockchains have
mostly been used to underpin cryptocurrencies, but there are many other
possible uses emerging.
In fact, this
powerful technology can add new layers of speed, security and can even lower
costs associated with payment processing, but that’s only scratching the
surface.
In this special
report, we’ll take a closer look at some of the ways blockchain could be
integrated into your current business, or help you launch a new one.
Let’s begin!
Blockchain 101
Before we
consider the different ways blockchain can help your business, it’s important
you understand exactly what blockchain really is.
“Simply put,”
says BDC senior economist Gillian Ellas, “blockchain is a continuously updated
digital record of who holds what.”
Records of each
transaction—the date and time, dollar value of the transaction, and the
participants involved—are all encrypted into a “block” that is linked to other
blocks, forming that blockchain.
So, you first
have information, like a deal between people, which is then added to other
records to make a block. The final product is all the blocks linked together in
one long “chain.”
Let’s look at it more
simply, with examples.
Suppose Mr. A is
selling three coins to Mrs. B for $75. The computer record will list all these
details, including digital signatures from both
Mr. A and Mrs. B. The
record is then checked by the computer network.
The computers in
that network (called “nodes”) check the details of the transaction record to
ensure that it’s valid.
Records that are
accepted by the nodes are added to a block. Each block also contains a unique
code called a hash, as well as the hash of the previous block in the
chain.
These hash codes
allow the blocks to be linked together in order on the chain.
This hash code
is created by a mathematical function that takes digital information and
creates a string of letters and numbers from it.
No matter what
size the original file may be, a hash function will always generate a code that
is the same length as all the other codes.
For example, a
tweet message is far shorter than a novel like The Lord of the Rings, yet they
both would have a hash code of the same length.
A blockchain
database is shared across a network of computers, so no one computer contains
the information. That network is constantly checking the information to ensure
that all the copies of the database are correct.
Once a record
has been added to the blockchain, it’s very hard to change it. Any changes to
the record will generate a new hash code.
So, if someone
decided to edit The Lord of the Rings and removed a single comma, the resulting
edit would have a whole new hash code.
This is why it’s
so hard to hack a blockchain. The blockchain will still have the original hash
code embedded in it, so for a hacker to restore the chain, he or she would have
to recalculate that—and the next hash code, and the next, and so on.
Recalculating
all those hash codes would take a hacker an enormous amount of computing power
(not to mention the time).
One of the
reasons cryptocurrencies are so fascinating is that there’s no central
authority controlling the blockchain. Each person in a blockchain has the
capability to access the same information. This provides transparency and
continual reconciliation.
And, since the
blockchain exists on many different computers without a centralized version of
the information, there’s no central database a hacker can attack.
This means you
no longer need a trusted third party to verify your information and process
your transactions. You do, however, need some way to trust the other
parties.
Members of a
blockchain are anonymous and there’s no real way to tell if they’re trustworthy
or not. To resolve this issue, blockchains set tests for the computers who try
to join the network. These tests are called consensus
models.
The consensus
model tests require a computer to “prove” themselves in one of two ways.
Proof of work
requires a computer to “work” an increasingly difficult computational puzzle in
order to add a block to the chain.
This process,
which is called mining, takes a lot of computer power. In return for this work,
members may receive rewards like tokens or bitcoins.
With proof of
stake, on the other hand, participants buy tokens that allow them to join the
network. The more tokens they have, the more they can mine.
Real-World Examples
The financial
services industry is one of the areas beginning to utilize blockchain
technology to save on cost and develop new services.
Financial
institutions have been investing in blockchains to simplify their
record-keeping for payments and other transactions.
One recent
example is the Australian stock market, which announced they’d be using
blockchain to settle transactions. “This technology,” says Gillian Ellas, “will
be used to record shareholdings and manage the clearing and settlement of
equity transactions.”
Another
financial example is a company called Abra, a money transfer platform that lets
people working abroad send money home in 54 different currencies.
The money
transfers are fast and cheaper than a traditional service like Western Union,
which charges an average of 7% of the amount of money sent, according to the
World Bank.
A third
blockchain project involves the World Wildlife Fund and three other companies
that are working together to sustainably source tuna in the Pacific Ocean.
These companies
are ConsenSys, a blockchain company, TraSeable, an information technology firm,
and SeaQuest Fiji, a tuna fishing and processing company. The four together are
utilizing blockchain to track where, when, and how the tuna are caught and
sold.
Blockchains are
also the basis for cryptocurrencies like Bitcoin and Ethereum, which can be
bought and traded like traditional assets. And recording trades on a blockchain
offers a way to check the history of a product.
An additional
example would be jewelry companies, which hope to assure customers that their
diamonds are not from a place where their purchase might finance war.
“Several major
companies are investing in blockchain,” says Ellas, “including Microsoft, IBM
(with more than 400 blockchain projects around the world), Unilever, and
Toyota.”
Blockchain could
also be useful in property records. Storing land records on a blockchain might
cut way down on costly title research and insurance, and in politically
unstable areas, it could prove ownership.
The healthcare
field is another area where blockchain records would prove useful. Your medical
history could be securely stored and controlled by you rather than by your
doctor.
Finally,
blockchain technology could create tamper-proof election returns. The
advantages of this should be fairly obvious, especially in the United States.
How Blockchain Can Benefit Your Business
As small
businesses seek better and more efficient ways to serve their clients,
blockchain can be especially useful as a way to conduct transactions and even
to raise capital.
The cost to
incorporate this technology is far less than you might assume.
Many small
business owners think that only large companies have the money to afford
expensive designers to develop such advanced technology.
The truth is,
Entrepreneur writer Drew Giventer says, vendors have emerged who “provide
blockchain-based technology, not only for Wall Street, but for Main Street as
well.”
And blockchain
technology isn’t just for digital-first or online-only businesses. Bakeries,
gyms, nail salons, restaurants, and other small businesses that rely on a
physical space in the real world can get started using blockchain today.
Let’s take a look at some of the ways blockchain technology can
benefit entrepreneurs who want to take their business to the next level.
The first thing
your business can do to adopt blockchain is simply to begin accepting
cryptocurrency as a method of payment.
“What signals more of a
commitment to blockchain,” asks Giventer,
“than allowing
customers to pay with bitcoin or other cryptocurrencies?”
Some larger e-commerce companies like Expedia
and Overstock accept bitcoin. And this option is also open to online stores
through platforms like Shopify, too.
This platform
offers several advantages to small businesses, as the transaction fees are low
and fast, and there are no chargebacks.
Of course,
traditional merchants just aren’t set up to accept cryptocurrencies, so rolling
out this plan will require a lot of planning and testing.
You’ll need to
evaluate and spend money on a digital wallet, a merchant gateway, or a
combination of services needed to accept cryptocurrency from your
customers.
However, the
benefits of accepting cryptocurrencies will outweigh these costs in the long
run.
First, your
customers can see that you’re willing to expand your services, and that’s
something that will bring in new business.
Cryptocurrencies
also allow you to directly deal with your customers. That will reduce
transaction costs as you won’t be paying a third party for those any
longer.
Another big
advantage is that payments will be permanent and irreversible.
This will leave
your customers with no choice but to contact your business directly if they
want a refund—and that will end the problem of chargebacks, where customers
purchase services or goods, then cancel the payment on their credit card,
leaving the business in the hole.
Blockchain technology
is particularly recognized for its applications and platforms which aid money
transfers and payment transactions. Your business can utilize this to transfer
funds securely without heavy costs.
For example, you
could transfer money to employees anywhere in the world without worrying about
using an expensive intermediary.
What about a
situation where you want to properly document transactions with several parties
involved?
You might be
able to use some of the new business applications for Distributed Ledger
Technology (DLT) that are being investigated currently.
You could have
an accounts audit trail, ties in a supply chain, or steps to the execution of a
deal. Ethereum, created in 2015, is an easy way to make special “distributed applications”
or Dapps.
Another
variation, called permission ledgers, blends the advantages of a blockchain
with business security. You might not realize when an underlying device begins
using DLT, but you can see certain changes:
Reduced instability in supply chains:
With many small
businesses, shipping and logistics activities can be a resource-eating,
admin-heavy mechanism.
And with each
supply chain partner, the work is multiplied. DLTs can make some of these
activities easier and far more secure.
Unbreakable agreements:
Businesses deal
with contracts of all sorts on a daily basis, and signing those contracts means
placing your confidence in a piece of paper.
The difference
with a blockchain is that it’s digital and cannot be changed or tampered
with.
Smart contracts
also don’t require a lawyer to negotiate the agreement, saving you time and
money. So long as the conditions of the contract are met, the value transfer
will happen without fail.
Safer data storage at a reasonable price:
Blockchain
allows users to store data in a safer digital form for a fair price. The stored
data can be encrypted so that only those with a crypto key can access it.
And how about
data storage? “Blockchain storage applications,” says Giventer, “allow users,
including small businesses, to store data in a safe way, and at a reasonable
price, without compromising data security or overspending.”
Businesses and
personal users spend more than $20 billion every year on cloud storage. Imagine
saving that money instead of throwing it into the cloud.
Businesses can
also use blockchain for smart contracts, which are selfverifying and
self-enforcing contracts between the business and the client.
The contract is
stored within a blockchain ledger and is recorded in a way that cannot be
changed or manipulated.
Some examples of
smart contracts include commercial leases, agreements with suppliers or
vendors, and employee contracts.
A smart contract
offers your small business a level of protection it would otherwise not be able
to afford. You’ll be eliminating the middleman (usually an attorney) with a
smart contract, and that will save you a ton of money.
“Global
blockchain platform Ethereum,” Giventer notes, “was the first to introduce
smart contracts to the cryptocommunity, and is considered one of the more
advanced platforms for coding and processing of smart contracts.”
Blockchain
technology can give your small business an alternative method of raising
capital through Initial Token Offerings (ITOs) or Initial Coin Offerings
(ICOs). These are a virtual form of investment created with blockchain
technology.
Your company can
“issue” tokens or coins by using a platform like Ethereum to create and record
the distribution of these tokens as a form of investment in your company.
As an
alternative to banks, lenders, private equity clubs, and even crowdfunding,
ITOs are available for exchange where they can be freely traded. ITOs are
comparable to equity or revenue share in a typical company.
Interested
investors can buy into your offering and receive new blockchain-based tokens
from your company. These may have some use with the product or service your
company offers, or it may simply represent a stake in your project.
“The growing
loyalty of token investors,” says Giventer, “has made ITOs much more popular
over the years, and a viable capital-raising alternative for businesses of all
sizes.”
The ITOs can be
bought and traded on the open market, where “a new realm of liquidity is made
available to the general public.”
A small business
can also grow its brand and product awareness by giving customers a small
reward in cryptocurrency. This is known as a bounty campaign.
How it works is
that your company issues blockchain-based tokens that have some utility.
Perhaps they can be exchanged for some of your products or services in the
future.
You then
initiate a bounty program on a specialized forum or platform, and, as a result,
anyone can join the bounty, promote your company, and get paid in tokens for
doing simple online tasks.
If you’re in the business of verifying any sort of transaction, investigate how blockchains could impact your company. Think about the threat of clearing and settling stock trades and you’ll see that the disruption to many back-office functions and other services could be substantial.
If you belong to
some sort of supply chain, your partners may want you to start digitally
tracking your processes, especially if you supply a larger corporation.
Start thinking about where you fit into your customer’s supply chain and how you might be asked to participate in a blockchain.
If you supply
anything to consumers or other businesses, think how valuable it might be to be
able to track your products back to their sources.
Imagine how much
a fishmonger might be able to charge if he or she could reliably prove their
products were harvested using sustainable methods.
“In supply chain logistics,” says Gillian Ellas, “the combination of blockchain, smart contracts, and the Internet of Things will allow companies to track shipments and make payments when certain conditions are met (i.e. a product is delivered).”
An example is
Maersk, the world’s largest shipping company. They began testing blockchain to
track their cargo in conjunction with Dutch customs, the US Department of
Homeland Security, and the companies sending the goods.
Smaller companies could easily utilize the same technology.
“Imagine a
grocery store where inventories are getting low,” Ellas says. “Smart containers
holding the goods could be programmed to inform a wholesaler that they need to
be restocked.
The wholesaler
would contact a trucking company to pick up the goods and deliver them to the
retailer. Each step would be recorded and payments made via a blockchain
because all would be verified.”
Here are some tips on making progress with blockchain technology:
Do your homework.
While blockchain
has a lot of promise, there are also drawbacks you need to be aware of. Thus,
you should know as much as possible before you jump on the bandwagon.
Blockchain for Dummies
(which is a free pdf) and The Business
Blockchain books are great places to get started.
Ask why.
Before you spend
the time learning a new blockchain system, make sure you’re adding the tech for
the right reasons.
In general, your
reason should be to save time and money or otherwise make your business life
easier and faster.
Start small.
Pick one app and
get used to it before you go all in and sign up for everything out there. This
will allow you to concentrate your efforts and get used to just one system
instead of trying to do it all at once.
Final Words
Companies are
always getting bombarded with “hot new tech” that’s going to change their
game.
Some of this
technology ends up being useful, but some of it ends up wasting a lot of time,
energy, and resources. Deciding which tech will work with your business can
feel like a full-time job.
Blockchain has
been touted as one of those technologies that’s going to solve all your
problems. You might even have heard it praised as a solution to any number of
business problems, both large and small.
However, it’s also been vilified—and it remains a mystery to many business owners.
But in the end, there are some realistic practical applications for small to medium business owners. You just need to do your research and decide which ones will work best for your situation.
Despite all the potential, Ellas says we’re still in the early days of blockchain technology. Three key issues need to be resolved before it goes mainstream:
Energy Use: verifying the
transactions to add to a blockchain is energyintensive because it takes a lot
of computer power to perform all those calculations, solving equations by trial
and error.
Some technology
firms are working on ways to keep the security high but lower the energy cost.
Processing Speed: the massive number of computations also slows the processing speed. Researchers are now working on ways to simplify calculations and increase the number of transactions performed.
Interoperability Across Blockchains: the many blockchains (public and private) currently don’t “talk” to one another much. The next generation of blockchain technology may correct this problem.
“Blockchain,” says Tanvir Zafar of B2C, “is a fast-moving train that has bitcoin as its backbone.”
Many businesses
have already incorporated blockchain into their working scheme and are
recording exponential growth.
From contracts
and secure transactions to digital exchange and smart contracts, blockchain has
a lot to offer the small business owner.
The main advantage of incorporating blockchain into your small or medium business is the savings of time and money it can afford you.
Although there
are numerous benefits of incorporating blockchain, you should do your research
and figure out which blockchain application best suits your business.
You’re getting
in on the ground floor here, and if you pick the right platform, you can only
go up!
To your success,
Resources
Here are links to a few
resources that I believe will help you:
Blockchain Explained:
>> https://www.investopedia.com/terms/b/blockchain.asp
Blockchain Companies Paving the Way:
>> https://builtin.com/blockchain/blockchain-companies-roundup
Ultimate Blockchain For Business Guide:
>> https://searchcio.techtarget.com/Blockchain-for-businesses-Theultimate-enterprise-guide
Blockchain For Businesses:
>> https://searchcio.techtarget.com/Blockchain-for-businesses-Theultimate-enterprise-guide
