Over the last couple of months, blockchain technology has been increasingly getting the industry's as well as the media's attention, forcing leaders to question themselves, whether their organizations can still ignore this trend. We believe that the evaluation of blockchain technology must be a priority on the strategic agenda of all digital leaders. The trend cannot be ignored anymore, regardless of the industry. From health care to the financial or legal sector, it will impact how actors share and trust data in a globalized and digitized economy.
Defining blockchain technology
A Blockchain is in essence a sophisticated, distributed database which is shared with every participant in a public or private network. Each participant keeps a complete copy of all the data available. This is in contrast to traditional approaches, where only a single, central entity has the control over the database and grants access to others.
An important characteristic of blockchains is that they store transactions in a ledger. Each transaction contains information about the sender in the form of a pseudonymous public key, the time and the object of the transaction. The use of advanced cryptographic keys and algorithms ensures that even though a large number of actors has access to the distributed database, it is virtually not feasible to manipulate the blockchain. Adding a new transaction to the ledger requires a consensus process in which a majority of participants validates the change. Once a transaction has been successfully added to the blockchain, it is forever linked to the sender and is immutable. All participants have complete access to all historic data in the ledger and can inspect, at will, all past transactions.
it is virtually not feasible to manipulate the blockchain
There are practically almost no limitations regarding the content that is stored in a blockchain. The unit of data held in a transaction can represent not only money but also the certificate of ownership of an asset, physical or digital. Common examples are property, art or stocks. These can easily be transferred among participants of the network without the need for an intermediary.
As all information is structured and stored in a database, it is possible to automate processing of transactions based on rules that are built into the protocol of the blockchain.
Blockchain technology has already left the academic realm, but current developments are proving that it is more than a technological gimmick. Blockchains are on the brink of starting a large-scale disruption of our economy due to multiple business as well as technical opportunities. From a technical point of view, blockchains offer a secure and transparent system to store and share data. On the business side, the implications are even more profound. A single, trusted authority that controls the database is not needed anymore as data is distributed and shared among all participants. The latter has implications for various business models.
Applications in the industry
The following three use cases illustrate how blockchain technology could disrupt the operation of various industries.
Proof of ownership - Legal industry
Traditionally, proof of ownership of real estate is linked to physical documents that are authenticated and held by notaries. They act as trusted third parties and have the responsibility of both guaranteeing the accuracy of ownership information as well as to make it available upon request.
In the future, blockchains could eliminate the role of notaries. Transaction data could correspond to the document that needs certification such as the proof of ownership of real-estate. In case of a newly-built house, ownership would be logged in the ledger. As soon as the house is sold, the ownership would be transferred through a new transaction. All operations are certified and cannot be disputed due to the immutable nature of the blockchain.
Smart contracts - Insurance industry
In the case of car leasing, an individual typically signs a contract stipulating that if the monthly payments are not met, the ownership of the car is transferred to the bank as it represents the collateral. Keeping track of the payment and the ownership typically involves multiple systems, manual processes and paper work.
Blockchain technology enables a completely automated process. A system could monitor monthly payments using cryptocurrencies. If payments are not met, the car could lock its doors or, eventually, the title of ownership could be automatically transferred to the bank.
Chain of custody - Luxury industry
In the luxury industry, guaranteed authenticity of goods and a proper chain of custody are of high importance. Consumers need to be able to verify if the purchased goods are genuine. Brand owners, on the other hand, are interested in ensuring that goods only transit through official channels, starting from the production to the point of sale and all the way to service centers.
By designing a system that leverages blockchain technology it is possible to address all these requirements simultaneously. The ledger would store all the transactions related to the entire life cycle of the product. Only actors authorized by the brand owner would have access to the ledger to update information about the products.
The amount of examples regarding further use cases and industries that will be impacted by blockchain technology is vast. Countless companies around the world ranging from startups to multinationals as well as government agencies have already started to evaluate the use of blockchains in their internal systems. Some are at the stage of setting up labs or proof of concepts while others are already about to implement their solutions.
One technology, many solutions, many challenges
Even though blockchains are a highly promising technology, certain obstacles need to be overcome. Businesses additionally need to answer multiple open questions regarding the design and operation of the technology.
From a technical point of view, companies adopting blockchains must decide if they want to build their own platform or leverage existing cloud services. While designing their systems with the right tradeoffs, they also need to address security and the risk of cyberattacks.
On the business side, blockchain technology can be an opportunity to drive change in the industry or a threat that needs to be addressed rapidly. Careful assessment will define what products are feasible and how change management as a well as cost reductions can be accomplished.
We are here to support you
At OpenWT, we help our clients leveraging new technologies, such as blockchains, to reshape their business, invent new products or transform their organization. Our experts will guide you through the complexity of this new challenge and define the strategy to adopt in your industry. We will help you get started on your first project involving blockchain technology and accompany you to scale globally.
Stay tuned for future publications from our experts on this and other strategic topics on our website and on social media channels.