To Kill a Middleman: Why Blockchain is Vitally Important for Small Businesses

Gravity Protocol
Jul 7, 2018 · 5 min read

The term “Blockchain” has been a buzzword for a while. Everyone has heard of blockchain, but few use it outside of cryptocurrency trading and speculation. Usually, people talk about “creating trust where there is none” when referring to blockchain. You may also hear things along the line of, blockchain helping to “kill the middleman”.

However, many may not truly understand, what “the middleman” is, how to get rid of it, and, the main thing, why blockchain hasn’t been adopted on mass yet.

Small-Medium Enterprises account for more than 50% of the world economy’s GNP as well as more than 99% of all Enterprises. For example 99.7% of all of the businesses in Canada are SMEs. Without large funds from large businesses, SMEs have to fight for every percent of net profit margin. In addition, 90% of all service and manufacturing businesses with more than $700,000 in gross sales are operating at under 10% margins, when 15% to 20% are likely ideal (link).

This, in turn, means that every additional percentage of unnecessary fees and commissions deprives a company of either profit or marketing budgets, or, even worse, it forces the company to reduce their staff. This obviously has a negative effect on the labour market situation, since, according to research, about 90% of all employed citizens in Canada work at SMEs.

Even though all businesses (even the ones that are far from the IT field) are getting digitized, traditional expenses come to the IT-business too. Cash register maintenance expenses are replaced by acquiring expenses, the goods specialists expenses are replaced by CRM service costs, and tenancy expenses are replaced by marketplace expenses.

A standard Ebay fee is 10%, and a PayPal fee can be up to 4%. SAP Business One (an ERP Software for small business) professional license costs more than $3,000. SAP Arriba can, with increased use, cost up to $20,000 per year. Add to that the cost of banking services, bank transaction fees, HR services expenses, loyalty programs and so on, you can see why SMEs need to avoid extra expenses at all costs.

We must also mention document circulation expanses. Despite digitalization, in much of the world, document circulation is still very conservative due to the lack of a single digital document circulation standard among businesses (as we mentioned earlier).

These are the middlemen, and there will be more of them as the number of business processes in the word grows each year.

Blockchain offers the world currency transactions and smart contracts without any of the middlemen and therefore, without the fees that are paid to these middlemen. Despite the fact that the blockchain itself offers transaction fees that in some situations, can be higher than the fees of the traditional solutions (i.e. when you buy coffee with Bitcoin), in most business cases, blockchain solutions because of their usability, speed and costs are a much better solution not only for their technical features, but due to the fact there are no middlemen interests associated with the blockchain fees.

However, all current blockchain development is focused on banks, large corporations and governments. Trust is an important issue within these entities, but savings aren’t the matter of life and death in most cases. А blockchain for banks, corporations, and governments is just an innovation, that may or may not succeed in the main stream. Moreover, many major market players prefer to use “private” blockchains, whose use will never allow mass adaptation of disturbed ledgers as a technology.

Real mass adoption can happen only with the use of market standards and mass solutions based on these standards is implemented instead of custom solutions. This in turn, will happen only when a blockchain is used by not only major entities which represent 1% of the market, but by SME, which are 99% of the market.

So, what standards are we talking about? Why don’t SMEs use blockchain yet? There are 3 major issues:

  • The technical issue: There aren’t any comprehensible end products or interfaces. The businesses we talk about don’t need technologies, they need solutions.
  • The legal issue: It isn’t clear yet, how legal value will be applied to smart contracts, since a smart contract without legal value is meaningless.
  • The financial issue: Common entrepreneurs aren’t very experienced in the exchange to buy Ethereum or EOS to make a smart-contract work. They need a more comfortable solution.

To meet these 3 issues, we’ve developed the Gravity Business Framework, which includes three architectures:

  • The technical architecture. This is a set of components and modules based on the Gravity Protocol. Typical smart contracts (and in the future, turing complete smart contracts) are based on them.
  • The legal architecture. Our solution is called “The Extended Solution” and it is based on the Ricardian contracts which we wrote about earlier.
  • The financial architecture. This is the system of stable coins and gateways, that allows businesses to avoid the huge expenses of financial middlemen (banks and payment systems), all the while, not necessarily being aware that they are working with a blockchain and cryptocurrency.

These three architectures are shaping up in the Gravity Business Framework, which will help Small Medium Enterprises significantly reduce their expenses without resorting to the use of middlemen, while also helping the blockchain to gain mass adoption.

by Yuri Parsamov

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Gravity Solutions just published document describing Gravity Business Framework. It decribes the architecture of a seamless blockchain based solutions that optimizes business processes of SMEs while ensuring their legal validity. Gravity Business Framework is based on Gravity Protocol.

https://gravity.io/Gravity-Solutions-Business-Framework.pdf

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