“When do i need blockchain for my business?” — Three simple steps to find the answer.
At the latest since Blockchain entered the mass media, we can truly speak of a hype around this technology. There is much overpromising in media on the one hand and much uncertainty caused by things like energy consumption, data privacy issues and much more. And also the Blockchain representatives themselves don’t really make it easy for their potential customers. Some of them are already talking about “Blockchain 3.0” (an evolutionary stage for which the Internet took more than 20 years), but they mean very different and in many respects complementary technologies.
And yes, that’s very confusing.
On the other hand, companies thinking about investing in Blockchain projects often have a rather vague idea of what they will achieve or what future business models or cooperation with partners will look like in concrete terms. Comparable to the beginning of the Internet in the 1990s, companies do not know exactly how the powerful tools can be used best.
It’s really hard for non-IT focused companies (but also for most of IT-ones) to understand the benefit of Blockchain for their specific business. Many media statements about benefits of Blockchain are not very helpful for businesses because they all repeat the “Blockchain is the next big thing for logistics / supply chain / healthcare / choose something else” stuff which is mostly too unclear in the question “Why do I need Blockchain for solving that shit”.
On the other side, if you find really practical Blockchain scenarios, then it’s often hard to transfer that solution to your business directly. The main reason for that is, behind a Blockchain project are often thoughts and ideas about the future creation of value which are not obviously evident when only looking at the results.
In the this article I share some thoughts about business benefits which are more generally and therefore hopefully transferable to various companies and situations. These criteria should help to decide whether it make sense to intensify the thoughts about Blockchain and maybe starting a project or pilot with this technology. And for this article I do not differentiate between Blockchain 1.0, 2.0, x.0 and also not between Blockchain, Distributed Ledger technology, Tangle and so on. Today, it’s all about the when-question.
Then when the advantages are understood and you can give an answer to the “When”-question, the next challenge is to answer the “how”-question. Then you have to find the best technology to realize your individual goals. Because that’s just as hard, I will shed some light on that matter in the next article.
But let’s start with the question:
When do I need Blockchain?
In my opinion, there are three areas where intensify your thoughts about Blockchain make sense.
- The digitization of real world assets to provide data driven business models
- The digitization of processes and transactions between independent companies
- The provision of immutable transaction and asset records
If you have a pain or a gain in one of this topics, you should intensively deal with Blockchain. If you think about using a Blockchain for something quite different, let me know, there is a small chance that I completely omitted a topic but there is a much higher chance that it would be better to go out and enjoy the sun instead of wasting energy in thinking about how to solve your non-blockchain topic with blockchain technology. (I can also recommend reading on of my older articles about “Do I need Blockchain for my business project”)
To give a better understanding about the potential benefit in each of the topics, I try to answer the questions:
- What’s behind the topic?
- What benefit can you achieve by using Blockchain technology to solve that issue?
- Why a classic (non-blockchain) technology is not able to solve the problem the same way (or better)?
Digitization of real world assets
The digitization of real world goods is one of the most interesting things in using Blockchain technology for businesses because it’s the foundation for the ever growing demand of creating digital business models around existing physical goods. I see two main drivers for that demand.
One is the sharing economy trend where things like cars, machines or tools are used by several users and the other one is the industrial internet or more concrete the ability to coordinate processes directly between the involved machines and products.
Let me explain that on a concrete example of sharing economies. In many industries, especially the construction sector, there is a growing interest in renting special machines instead of buying them. To provide such rental offerings, you have to do a lot of work. The machine must be available at the requested time, you have to make sure that there is an appropriate insurance policy in place, the machine operator must be certified to use the machine and so on. All this is done today mostly by exchanging a lot of data in a paper based way.
What if the machine itself was able to control the whole process? That’s exactly the idea behind digitization of goods. An important prerequisite for achieving such a digital communication is to enable the machine to participate in a digital communication directly. With Blockchain technology it is possible to provide a digital representation (I will call that a “digital twin”) for a good, like a machine. This digital twin enables the machine to participate in a digital transaction using a trustful identity which then can be used to coordinate the required activities for a process.
If we take our example, then we see a completely digital rental process where the construction machines participate in a transaction directly and coordinate all the required activities from booking to payment. You can for instance book a available machine, pay for a specific usage period and get access to the machine exactly for the agreed time. In a broader sense, this can be described as the tokenization of goods.
So why do you need blockchain technology for the digitization of assets? Even the sharing of things or the orchestration of processes is done today using manual work in a large extend. And sure, a lot of effort has been put into the digitization of processes over the past years. During that time a mass of IoT-Hubs, platforms and cloud solutions have been created.
But they all have a massive problem. Using a central platform for digitizing your own processes makes your core-business dependent on a third party. That’s a tremendous risk and the main reason why companies are reluctant to use such platforms. Blockchain solves that problem by letting participants (like goods) interact with each other by keeping data sovereignty. Information is shared between partners as needed and initiated by the data owner. There is no need to rely on a central intermediary and provide all your data to them.
A well designed blockchain solution also solves the todays problem of vendor lock-in. This ubiquitous risk means that you more heavily rely on a platform the more integrated in your value creation this platform is. I’m gonna look at this a little more closely in my next article.
Digitization of processes and transactions between independent companies
In the area of process collaboration between companies we find many similarities to the digitization of goods. The main driver in this topic is the ability to coordinate cooperation processes more efficient on the one hand and more flexible on the other. From todays perspective that are completely contrary goals. If there is a need for more efficiency, then you’ll probably start a cross-company systems integration project using things like EDI-based data exchange.
Such cross-company integration projects mostly causes high costs and comes along with a rigid coupling between the partners which is completely inflexible.
To integrate partners in a more dynamic way, more and more platforms were created and can be used to flexibly integrate processes in a partner-ecosystem. From the perspective of process integration this is a big step, but from the company perspective that comes along with an unprecedented dependence on a third party.
Using Blockchain technology it is possible to design systems where trust and value can be exchanged between partners without relying on a powerful central intermediary. This is achieved by using Smart Contracts, defining the rules of cooperation like agreed service level, delivery times or quality criteria’s. Smart Contracts can than be used as a digital representation of a concrete value chain to exchange data between the participants and to automatically check the compliance with the defined rules. To answer the question why Blockhain is an appropriate technology for such supply chains, we have to look at the alternatives.
Building a flexible partner network digitally, the only option you have today is to use a central system provided by one of the partners or provided by a 3rd party. All partners have to rely on the platform with all it’s weaknesses, especially the data sovereignty and dependence risks.
With Blockchain all the data and functionality for a concrete partner relation can be enclosed in a Smart Contract. Assuming you have a good Smart Contract Design, the content within a Smart Contract is only visible to the participating partners.
Immutable transaction and asset records
The third category based on the growing need for trust in a digital relationship between partners or machines and goods. For a comprehensive digitization of processes across various companies, the digitization of trust is an essential prerequisite. Starting at the commissioning to the production and quality assurance to the payment all contracts and data exchanged between the participants needs to be trustful. Trustful means that the issuer of the information is really who it claims to be and that the exchanged information is stored in an immutable, tamper-proof way.
When we use the example of the construction machines rental service, there are many information to be stored in an tamperproof way. Such information are for instance, the documentation of the transfer of risk of the rented products, service reports or usage times. If you can handle all this information trustful and digitally, you can improve the processing speed tremendously.
As in the previous examples, one possibility to build such cases is to use a central systems which coordinates and documents all activities. As long as you do not have a problem in trusting the central system, you should use it. If you have objections about becoming dependent, you should take a closer look to Blockchains. With the tokenization of goods and processes, it paves the way for new kind of asset management solutions where data is stored encrypted within a SmartContract and and determined by it’s owners.
Blockchain shows it’s strengths in these three categories. If you are able to map your use case requirements to one of the three categories, then intensify your thoughts about Blockchain and go deeper into concrete optimization benefits or new business models. In my next article I will try to give an answer on which Blockchain technology is the most suitable for your business.