Do you really need blockchain?
Blockchain is not only about cryptocurrencies and ICOs. It can be integrated into business processes and we provide free Block Advice.
In 2017 Barclays and Ornua used blockchain based digital letter of credit to make a deal on exporting cheese and butter. Maersk uses IBM Blockchain technology as the foundation for digital supply chains. Chinese Zheshang bank issued $66 million worth of blockchain-based securities. And there are plenty more: companies transfer data, money and documents using blockchain.
Despite the countless conversations and announcements, technology adoption rate is still low and there are few real-world projects. Moreover, blockchain is often used solely to attract attention.
Bloсkchain was the most hyped word of 2017. 2018 was supposed to be the year of its large-scale implementation. We got another year of pilots and press releases instead.
The main problem is that business lacks the understanding of whether blockchain is applicable for their business. Most of the pilot projects are aimed at identifying applications and finding a business case, but they rarely succeed. Why would someone use blockchain instead of a centralised solution in a particular case? Often there is no clear answer.
For the last three years we have been looking for possible applications with banks, transport and mining companies, startups and many others. Below is our approach to case evaluation.
What is blockchain
Let’s quickly repeat the basics (for more details we recommend this article):
- Blockchain is a sequential chain of blocks of information which is stored not on the central server, but by all the network participants in a distributed manner.
- Data in blockchain cannot be changed, but only appended. Blocks are connected to each other by cryptographic signature and stored in a chronological order.
- Consensus mechanism, a set of rules on adding new information to the chain, ensures that all records in blocks are valid and do not contradict each other.
All of the above features make it possible to create trust without any middlemen involved, which is the key advantage of blockchain technology.
The reason for such a small number of successful blockchain implementations might be sought in its shortcomings (read more about it here).
Here are the main issues of blockchain:
- Low speed. The limit of public blockchains (given we are talking about those that can back their number of transactions per second by real facts and not just promises) is usually somewhere around 100 transactions per second (TPS). Private and hybrid blockchain, where an owner grants permission to join the network, help to speed things up.
- Technical restrictions. It is expensive to store files on blockchain: as a rule, they are taken out to an external network.
- Implementation and scaling. There are no out-of-the-box blockchain products that could be integrated into an existing infrastructure. There are few specialists and they are expensive enough, if we speak about really qualified and experienced ones. It takes significantly more time and money to find right team for the job.
While it is possible to somehow overcome existing limitations, the main question that most are still to answer is “Do you really need blockchain?”.
How to make a decision
It is not always easy to assess the applicability of a blockchain. Nevertheless, we have developed a framework that helps us to decide on the relevance of blockchain in a particular case.
It helps us to filter out a large number of useless hypotheses and focus only on those where the use of the blockchain technology is justified.
Where you do need blockchain
Tokenization of settlements
Problem. If a company uses paper promissory notes, the maintenance is very costly and time-consuming. It is not possible to simply issue digital promissory notes because the recipients will be at risk of their records getting erased, modified or lost due if a database gets compromised.
Solution. A trustworthy third party (for instance, depositary or bank) can solve the problem of trust by issuing digital promissory notes. However, this will make the whole process even more complicated. With the help of blockchain, the company issues promissory notes in the form of tokens to its counterparties. Tokens can be easily transferred or traded after the issuance.
Why blockchain? Blockchain guarantees that no one is controlling the ledger. This means that the issuer is unable to delete or modify records about tokens, which creates trust among the promissory note owners.
Certification of documents
Problem. Notaries help to verify the documents. Let us just admit that it is not as convenient and fast as we would like it to be.
Solution. The system of digital document verification would solve the problem by removing the need for the involvement of a third party .
Why blockchain. Blockchain technology acts as a guaranteed third party and eliminates the inconvenience of the notaries.
Tracking the goods along the supply chain
Problem. It is difficult to build traceable and reliable supply chains.
Solution. A single system, trusted by all the participants, would speed up the document circulation process, solve the problem of counterfeit and help to exchange information about the location and quality of the goods.
Why blockchain. Blockchain is an effective solution because of its immutability, chronological order of blocks and decentralisation. All participants can add information to it and have no doubts that information provided by others is valid.
Our team is experienced in technology, law and business transformation. However, we cannot have a deep understanding of every industry possible.
When we provide our expertise we rely on our clients: first we educate them on blockchain and its limitations and then ask them to share the pain points that may be solved with distributed ledger technology.
This approach is time-consuming, dependant on external factors and difficult to scale. That’s why we’ve decided to try something different.
Companies know their problems better than anyone else. We know a lot about the technology and the potential use cases. We can help each other.
Take a minute and write a short description of a problem and your hypothesis (if one is formed) regarding how blockchain can solve it.
We will evaluate the problem, the hypothesis and whether blockchain is applicable. If the problem can be solved with blockchain we will propose a solution. All of it is free of charge.
You will a comprehensive problem evaluation and our opinion on whether it can be solved by the blockchain. We will gain knowledge about the problems companies experience that we would not get otherwise.
We have created a special page where anyone can send us their problem and get it evaluated within a week. We hope that together we will be able to find proper relevant use cases for blockchain.