To understand how blockchain is going to change the data of business and the business of data, ignore the jargon.

Ignore the hype.

Especially, ignore the confusion.

Fundamentally, blockchain is an incredibly simple thing: a record book that everyone can see, and no one can alter. This extremely simple idea has the potential to change huge swaths of enabling software and process for business, for finance, and for government, says Crowd Companies founder Jeremiah Owyang.

How blockchain works (which Owyang adapted from Oliver Wyman & Anthemis Partners)

It's this very simplicity of blockchain that supplies the potential to change.

Why?

"Blockchain builds trust among parties that normally depend on third parties to verify transactions and ensure legal obligations are fulfilled," Owyang writes in a new report, "The Business Models of Blockchain: Exploring Blockchain Use Cases Beyond Bitcoin and Financial Services." "Imagine being able to track shipments through your supply chain with ease, down to the individual package or even component level. Or executing a contract with a vendor without the need for an intermediary auditor."

For those unfamiliar with blockchain technology, here's how it works:

  1. Someone wants to send money, ship a product, or sign a contract
  2. They send notification of the action to everyone in the neighborhood (which can be global)
  3. If the transaction is valid, everyone approves it
  4. After approval, the record is updated (in this case, a block is added to the blockchain)
  5. The action happens, and, if it's a payment, the money changes hands
  6. An unchangeable record remains of the transaction

This much most people with even a small amount of familiarity with the technology already know. Using blockchain means that everyone has a reliable, public record of what any particular company or individual said they would do, and what they actually did.

In other words, blockchain enables trust through visibility.

That has huge implications.

Those implications include creating new types of contracts--smart contracts, say Owyang and report co-writer Jaimy Szymanski.

A central record book versus a distributed record book (which Owyang adapted from Oliver Wyman & Anthemis Partners)

"'Smart contracts' stored on the blockchain track contract parties, terms, transfer of ownership, and delivery of goods or services without the need for legal intervention," Owyang and Szymanski told me via email. "Bills of ownership, titles, and notarized documents stored on the blockchain can also prevent forgery, fraudulent sales of merchandise, and illegal sourcing practices."

Contracts are one example, but business process is another.

Manufacturing companies spend millions to understand where components are, when they'll arrive, and that suppliers are shipping what they promised to ship.

Blockchain can replace all of that, Owyang says.

"By utilizing a blockchain, companies within a supply chain gain transparency into who is performing what actions, when, and in which location," he and Szymanski told me. "Once a supplier (or its products and shipping containers via internet-of-things sensors and chips) inputs tracking data onto a blockchain ledger, it is immutable. This allows other suppliers in the chain to track shipments, deliveries, and progress among other suppliers where no inherent trust exists. It also increases efficiency and lowers costs, as the need for middleman auditors is eliminated once individual suppliers can easily perform their own checks and balances in near real time."

Energy is another sector the report identifies as one that is ripe for disruption from blockchain.

Energy, of course, is in the very early stages of a massive transition from centralized production to distributed production. As more and more people and organizations adopt solar, wind, and geothermal energy production, they'll have energy to use both for their own needs and, potentially, to sell into the power grid.

Blockchain could help recognize contributions while also balancing them against withdrawals.

Other industries ripe for blockchain penetration include food production, government records, retail, health care, insurance, and education, to name a few. In government, the country of Estonia is already leading the way. The government has enabled residents to "notarize" their marriages, birth certificates, and business contracts with blockchain.

But shifting business models, changing processes, and adopting new software is not easy. There are some roadblocks on the pathway to blockchain adoption that Owyang and Szymanski cover.

The report identifies six of them:

  1. Blockchain verification is slow
  2. Laws and regulations are even slower
  3. There are few proofs of concept yet
  4. Many are working on blockchain technology in secret, not sharing their results
  5. There's no IBM of the industry yet, setting standards
  6. The publicity of blockchain can be a problem for some

Those are real challenges. However, with more than $1.4 billion invested in the space in 2016 alone, and more this year, hundreds of startups and established companies are working on solving those issues.

The next three to five years will reveal if they succeed.