Pros and Cons of Blockchain Technology for Businesses

Blockchain has a game-changer impact on businesses and will benefit them in four significant ways: decentralized finance, faster payment, data security, and more efficient logistics and supply chain management. Blockchain’s features distinguish its technology from others, like; being decentralized, immutable, doing faster transactions with low costs, and having high data security. Besides its good aspects, blockchain technology carries many risks that need to be developed and fixed; however, it has more advantages that are beneficial in various industries. The risks of Blockchain can be created and turned into valuable qualifications over time. Indeed, this technology will change and grow more in the future and be permanent.

But why?

1-) No third parties!

One of the most significant benefits of Blockchain is Decentralized finance, or Defi, which uses emerging technology to remove third parties in financial transactions. Getting rid of the requirement for a trusted authority, mid-man, or any third party in a transaction process is beneficial for both security of personal data and is also a way to cut high costs in the transaction process.

According to Santander FinTech, distributed ledger technology could save financial services infrastructure between $15 billion and $20 billion per year by 2022, allowing old systems and infrastructure to be removed and IT costs to be drastically reduced (PwC, 2021). Even though Blockchain contributes to businesses’ profit by cutting costs from different processes, there are costs associated with hiring blockchain developers, which tend to cost more than traditional developers due to their specialized area of expertise. So planning, licensing, and maintenance costs can also contribute to a hefty price tag (Wang et al., 2021).

2-) Faster payments-lower costs

Blockchain will save businesses time for the second benefit through its payment processing speed. Blockchain technology promises to facilitate fast, secure, low-cost international payment processing services (and other transactions) through encrypted distributed ledgers that provide trusted real-time verification of transactions without intermediaries such as correspondent banks, making the processes faster than their opponents (Faden, 2017).

3-) Data Security

The third benefit that Blockchain provides for businesses is data security. Blockchain keeps companies’ data safe by keeping track of every minor and significant change, storing the data in various locations, pinpointing the exact point where the error occurs, and providing private keys to prevent identity theft. Besides cutting costs, processing faster, and saving more by using Blockchain technology, businesses can also increase their profits by cleaning up their supply networks, eliminating counterfeit parts, and diverting from the manufacturing process (Radocchia, 2019). Blockchain provides efficient logistics and supply chain because transaction data on the blocks cannot be altered or forged in this technology, so the transaction information is very trustworthy.

Cons

Despite its advantages, there are also possible drawbacks, indicating that any blockchain solution must be well-tailored to the supply chain. Even though it tracks every process step, Blockchain may have errors due to the human element. For example, an employee could fill a container with rocks and register it on the Blockchain as if they are auto parts. Blockchain technology could make it easier to detect at which stage the container was filled with rocks in the supply chain, but it would not prevent fraudulent data from hitting the Blockchain in the first place (Wang et al., 2021). While Blockchain cannot avoid problems arising from third parties, it will help businesses reduce them.

Being Immutable

On an immutable data chain that can not break, a blockchain can store almost anything in a few different ways. The most common methods are; breaking up the data into small pieces, encrypting the data for remote accessibility, and disturbing files into various networks so that if one of the networks has an error, it won’t affect the data. Even though these features make blockchain technology more trustworthy, persistent, and precise, they also pose a risk. The inability of blockchain technology to unlink data in this “distributed ledger” poses a challenge for businesses attempting to comply with data privacy rules (Bruno & Spencer, 2019). The size of the network limits security. If a Blockchain network isn’t extensive or well-distributed, it becomes vulnerable to attacks.

The DAO hack, which happened recently, is an example that embodies this problem. In 2016 a decentralized Ethereum blockchain that raised approximately $150 million in crypto got hacked after an error in the DAO code. It was impossible to stop the attack in the middle of it while still sticking to the immutability (Palley, 2018). This event demonstrated how immutability poses a risk besides its safety benefits.

Contribution to World Economy

Besides its boost to the growth of businesses’ economies, Blockchain also has a crucial role in boosting the world economy in various ways. A new analysis by PwC shows Blockchain technology can potentially increase global gross domestic product (GDP) by US$1.76 trillion over the next decade (2021). Currently, international trade is an inefficient and dysfunctional process that slows commerce and discourages trade. International trade is fraught with fraud, counterfeiting, dirty politics, and errors (Pierson, n.d). Blockchain technology reduces the inefficiency in these situations and creates a better market to trade by being the application of cryptocurrencies and making a more inviting and trustable transaction environment.

Conclusion

Lowering the costs, creating a more secure and trustable transaction environment by eliminating the third parties and the mid men, and a better way to store data make Blockchain an attractive technology for businesses. With benefits and risks, Blockchain has already impacted the whole business community because it guarantees the quality and source of goods and services, creating bright arrangements to manage business contracts automatically (Stambolija, 2019).

References

Bruno, L., & Spencer, F. (2019, June 4). Blockchains and Immutability. EisnerAmper.

Faden, M. (1970, January 1). Benefits of blockchain: Faster Payment Processing: Amex us. Benefits of Blockchain: Faster Payment Processing | Amex US. Retrieved May 9, 2022, from https://www.americanexpress.com/us/foreign-exchange/articles/blockchain-to-accelerate-payment-processing-services/#:~:text=Blockchain%20technology%20promises%20to%20facilitate,as%20correspondent%20banks%20and%20clearing

Palley, S. (2022). Risk Management Magazine — Understanding the Risk of “Immutable” Blockchain Applications. Magazine. Retrieved April 20, 2022, from https://www.rmmagazine.com/articles/article/2018/10/08/-understanding-the-risk-of-immutable-blockchain-applications-

PricewaterhouseCoopers. (2017). Blockchain: A new tool to cut costs. PwC.

Radocchia, S. (2019, January 4). How Blockchain Can Reduce Costs For The Shifting Electric Vehicle Landscape. Forbes.

Stambolija, R. (2022). Five Ways Blockchain Can Transform Traditional Business and Impact the Market in May 9ture. Medium. Retrieved 20 April 2022, from https://medium.com/mvp-workshop/five-ways-blockchain-can-transform-traditional-business-and-impact-the-market-in-the-future-6310a9554214.

Wang, E., & Wegrzyn, K. (n.d.). The Pros and cons of Blockchain in supply chain. JD Supra. Retrieved May 9, 2022, from https://www.jdsupra.com/legalnews/the-pros-and-cons-of-blockchain-in-8158255/