When Kodak announced its own cryptocurrency and blockchain for photographer rights, there were those who shook their heads. Warren Buffett did yesterday. Tren Griffin of Microsoft, who is a former private equity partner, tweeted about defunct old brands like Wang, Atari, Silicon Graphics, and Borland announcing their own cryptocurrencies. How irrelevant. How silly.

And how wrong. Certainly there is a bounty of tech hype that has become an integral part of the industry. Much of the cryptocurrency craze has fed on speculation. On that single front, Buffett is correct, as my Inc colleague Lisa Calhoun noted. The big mistake is to assume speculation as the extent of the technology. But the cryptocurrency and blockchain combination could offer a lot to businesses of all sizes, from ensuring payments to enforcing important contractual provisions.

I've been ambivalent myself, seeing the potential in having a traceable set of transactions but skeptical about the value of currencies with nothing but their own existence to justify value. There have been the security problems, despite the claims of absolute protection, that have resulted in the loss of millions of dollars.

But in the Kodak announcement I found something that showed the important reasoning of businesses. You just have to understand the real use of blockchain and cryptocurrencies.

You get to enforce the contract

One problem for businesses is making sure all parties meet the requirements of contracts. Heading to court over a dispute, even if you do win, is a pain, with success uncertain.

Blockchhains can tie code execution and digital processes to the satisfaction of specific conditions. As the Kodak example shows, when you work in the realm of intangible assets and value, you may want to restrict the actions of others. There is no perfect solution, but software can go a long way, like preventing use of some asset or at least alerting you when a licensee crosses some forbidden lines.

This one capability can save you immense time and effort. In Kodak's case, material might self-report abuses to the rights holder, speeding defensive legal action. In other examples, a blockchain might withhold authorization to release goods from a third-party warehouse until payment had cleared. The possibilities to speed and simplify transaction clearance are impressive.

Cryptocurrencies are about payments and not speculation

With the news of rising, and falling, Bitcoin values and the growing number of other cryptocurrencies, you could be excused for thinking the whole concept a grand Ponzi scheme. People "mine" solutions to cryptology problems and someone declares them to be valuable. Until suddenly they aren't.

But forget the attempt to establish free-standing digital currencies. You could as easily think of cryptocurrencies as closed and controlled payment mechanisms run by trusted third parties like vendors. Kodak plans exactly that. Photo rights-holders could only release use of their works once a client had paid in the Kodak cryptocurrency.

Although it's unclear whether the Kodak entry will allow speculation, you could also base a payment system on an existing currency, like the U.S. dollar, as some already are. A company could maintain the payment network and referee the receipt and payment of actual money. The cryptocurrency would become a token acknowledging the dollar transfer, not a currency in its own rights, with the rights-holder able to withdraw dollars that had been held in escrow.

There are problems to be solved

Blockchain and cryptocurrencies aren't perfect. No matter how practically unbreakable the cryptography, so-called human engineering and programming errors can leave blockchains vulnerable to plundering. Trying to establish independent values for cryptocurrencies is betting on a commodity that could lose its value in an instant. (South Korea's reported plans to ban virtual currencies has spooked investors.)

But, done carefully and correctly, blockchains and cryptocurrencies could, and probably will, become important tools in global business. The sooner you understand the real potential, the better.

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Published on: Jan 12, 2018