Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin. Blockchain has slowly gained traction in the enterprise since its emergence 10 years ago. In fact, late last year we saw digital workplaces using blockchain to share data and collaborate securely.
Blockchain in the Mainstream
Some suggest that blockchain will become mainstream in 2019. Elizabeth White, CEO of White Company, a blockchain based financial services technology firm that operates an exchange/wallet service, a crypto merchant processor and a crypto loadable debit card, agrees that that while 2019 will be the year of mass adoption of blockchain, it will only be for a few key, impactful use cases.
The reality, she said, is that the majority of applications being considered for blockchain simply do not need the distributed, trustless ledger that it offers and can be run faster and better on traditional databases.
White cites the example of supply management, or provenance. A blockchain is not necessary for this use case because there is a narrow group of users needing access to the information and the most important aspect of that information is not the transfer, (which is what blockchain is good for) but rather the input (which blockchain does not solve).
“There are certainly applications of blockchain that touch on supply management as it relates to trade finance,” she said. “The prime use case of blockchain is trustless and automated payments, and leveraging that technology we are building systems for B2B payments that can serve as escrow or conditional payment protocols.”
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Blockchain still faces problems, though, especially in the regulatory space. Braden Perry, a regulatory and enforcement attorney at Kennyhertz Perry, a company that offers enterprises legal advice on blockchain projects, pointed out that the blockchain in industry, like blockchain technology itself, is in its infancy, but on the peak of rapid expansion.
Businesses that see the potential and are proactive in its adoption will likely be the front runners in innovation and ahead of the curve when the benefits are fully realized. There is an opportunity for efficiencies in transparency and cost-cutting, and a few high-profile applications are taking hold. When the regulatory landscape evolves with the technology, more businesses will likely follow.
The biggest challenge to blockchain adoption, he said, is that the regulatory treatment is unclear for many uses of blockchain and virtual currency technology. “It seems as if every federal regulatory agency has chimed in on blockchain issues, but none have taken the lead,” he said.
For example, The IRS has classified virtual currency as property, and the Commodity Futures Trading Commission (CFTC) said they are commodities. The SEC has implemented a securities structure surrounding initial coin offerings (ICOs), and no agency has labeled virtual currency as an actual currency. “This is true with blockchain. Until the regulatory structure is clear, many companies will be hesitant to use the technology to innovate their business processes,” Perry added.
Companies looking to innovate and are proactive in its uses will likely reap benefits in ways we can imagine, and in likely unimagined areas. As the regulatory framework progresses with innovation, companies will benefit. But that regulatory framework will likely lag the innovation, and frustrate those willing to adopt new technology.
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Blockchain Simplifies Trade
Glenn Gow, a CEO coach and consultant on digital transformation strategies and blockchain, said that one of the drivers of blockchain in the coming year will be the simplification of commerce through the use of ‘digital rights’ or blockchain token.
Some assets, he said, are inherently difficult to trade, and are not liquid. Other examples include precious metals, fine art, agriculture and other assets. Current owners of those assets may want to raise funds, but it is very challenging.
Blockchain assets could change that. The way to remove costs, simplify the tracking, speed up the process and increase the liquidity of the asset is to create a “digital right” to that asset (or portion of that asset). A digital right is another word for a token. In this case, the owner of the waterfront property can create an “asset-backed token” which they can now sell on an exchange.
“In 2019, we will see the proliferation of trading opportunities for assets that have previously been difficult to trade,” Gow said. “By using the blockchain, those who want to trade assets will see their costs go down, transaction speeds increase, an increase in capital inflow and an increase in investible opportunities.”
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The Human Element of Blockchain
However, not all the problems that enterprises face with blockchain are technology-based. Alison McCauley, the CEO of Unblocked Future, a consultancy focused on the adoption of emerging technology, said while there is a lot of talk about the technical challenges of blockchains, there is not enough about the human factor.
“Blockchains are a team sport — the greatest promise comes from use cases that stretch across an ecosystem and deep into business processes,” she said. “This means people coming from different organizations need to work together in a way they are not used to doing. Organizations that may not trust each other could unlock great value by using a blockchain to safely collaborate on a business process.”
But this kind of change is really, really hard. People need to understand why they can trust the technology to serve as a proxy for trust. They need to change the way they work. And this kind of change takes time — especially at the enterprise level.
Over time, as technical barriers fall, the human barriers will rise to the forefront and gain more attention. In 2019 more organizations will understand they need to dig into the human factor: how do you get parties with different perspectives to work together to drive more value?