With all the hype and confusion surrounding blockchain (and more generally DLT), it’s hard for enterprise to figure out what problem — if any — blockchain really solves for their business. Blockchain can be a pointless distraction if a company lacks an understanding of what blockchain is and isn’t good for and of the real market effects we can expect from the technology. Where is blockchain’s real practical impact?
We can break the impact of blockchain into macro and micro effects — that is, broad economic effects and practical benefits for individual businesses. While the macro-scale economic impact is interesting and potentially significant, I’d like to focus here on the real practical benefits to individual businesses. How do we identify where blockchain makes sense? What advantages does blockchain provide over other technologies?
What Blockchain Does Well
Blockchain as a technology class is designed to create bulletproof systems that ensure the correctness of rules and records. For example, Bitcoin’s rules and records are simple: the rule is that that Bitcoins should act like money — don’t let them be spent more than once, keep track of who owns them, etc. — and the records are the transactions of people sending Bitcoins around.
However, ten years on from the invention of Bitcoin there is an enormous diversity of newer blockchain technologies. Today there are many options that allow complete customization of the rules and records to manage far more than digital money. Their methods of development and feature sets vary greatly. One form of customizable rules-and-records implementation is the “smart contract”, but there are others. Some blockchain systems run on public networks, some can be set up for totally private use within a company, some can do both. The differences go on and on.
The common denominator however is the rules and records; all blockchains have this core functionality (although most probably wouldn’t describe it this way). The best way to determine where blockchain can be useful is to identify what “things” may be usefully managed by a blockchain rules and records. Digital money was the first, but there is a much wider range of things for which blockchain is well-suited. For enterprise applications, I call them BOAs.
BOAs For Enterprise
BOAs are the Business-critical Objects and Actions that must be managed correctly at all costs. The business’s customers (whether internal or external) trust that the company will manage these objects and actions absolutely correctly — with real capital, time, resources, and reputation at stake.
Note that I don’t use the generic term “data”, which is the typical purview of database technologies. BOAs are much more specific than just data; they are the highly visible — maybe even tangible — nouns and verbs that describe the business itself. It’s the stuff that gets discussed in the boardroom, not just the IT break room.
BOA Objects are things like:
- Assets or products
- Accounts or holdings
- Customers or suppliers
- Roles or authorizations
BOA Actions are things like:
- Transfers and swaps
- Lifecycle or workflow progressions
- Issuance and redemption
- Changes of ownership
BOAs are often found close to the greatest competitive advantages and risks of a business. Handling BOAs securely and efficiently can overpower competition. But poorly managing BOAs can equally strangle a company, either through costly errors that disrupt the business and ruin customer trust or through the inefficiency of massively complex systems to avoid these errors. BOAs demand respect.
Once a business has a list of its own particular high-value BOAs, this forms an excellent starting point for determining where blockchain is likely to create an advantage. How?
Translating Tech to Competitive Advantage
The most meaningful blockchain implementations model a business’ BOAs as directly as possible, constrained within blockchain rules and records. Some forward-looking blockchain technologies even provide the tools to directly model many BOAs in “blockchain language” without writing specialized code. But regardless of how they are implemented, these elements of a meaningful blockchain solution hold true:
- The rules define the BOAs and encode how they must behave. Blockchain technology inherently ensures that the rules cannot ever be broken, by accident or mal-intent.
- The records store the resulting state of the business and its BOAs. Blockchain technology ensures that the records are stored securely and in an “immutable” tamper-and-error-proof manner.
Public or private blockchain selection raises additional (and important) advantages and tradeoffs for managing BOAs that I won’t get into here. But the primary advantage of inherently and robustly guaranteed correctness in BOA management is the foundation of blockchain’s utility.
Therefore when properly configured and used, the resulting blockchain system constitutes a secure and efficient source of business-critical truth for an enterprise. In most cases, the blockchain system functionally replaces a particularly complex and risky database-driven portion of an enterprise’s IT backend. It becomes a true competitive advantage by avoiding the costly inefficiencies and opportunities for error (or tampering) created by layering business logic, consistency checking, auditability and more atop less purpose-designed databases.
The greater the number, volume, and complexity of BOAs, the greater the advantage for the business managing them with blockchain.
The business world is beginning to see the potential, but this practical BOA-driven approach to applying blockchain is often lost amidst the noise of cryptocurrency hype and the confusing state of rapidly-evolving blockchain technologies. It remains to be seen if markets will be remade from the inside by leaders that embrace this approach — or if insurgents will use it first to rapidly grow their capabilities to compete at enterprise scale.