Blockchain is a distributed ledger system that can bring a new layer of trust to certain distributed business operations, especially those involving multiple different parties and shared data. For businesses where these features are core to their product or operations, blockchain could drive significant performance enhancements and cost savings.
But any blockchain solution requires a cost-benefit analysis that honestly accounts for the solution's ability to drive return on investment. As a venture capitalist, the number of blockchain startups I learn about on a weekly basis has steadily grown, largely in step with the absurdity of the applications. In many industries, the benefits of blockchain are of secondary, or even lesser, relevance to the true drivers of value in the business.
Startups need to better focus on where they add true value to a business.
We should change the way talk about blockchain: It can be a valuable asset for many types of businesses, but it won't, and shouldn't, disrupt every industry.
Who Needs Blockchain?
There are a plenty businesses and government agencies that will benefit immensely from a distributed ledger, where data cannot easily be altered.
Obvious examples include industries where their core business involves logistics, online payments, or multi-party contacts and other sensitive documents. Here are a few of the areas where blockchain can truly disrupt--and likely improve--operations:
Function = Trust/Accountability
In international shipping, goods change hands many times. Planes, trucks, and ships bring items across national borders, state lines, and through ports on a regular basis. In all cases, the transportation process involves multiple entities and third-party actors over whom there is little control and often minimal visibility. This makes it easy to lose or compromise business goals, as well as to blur accountability. In these scenarios, blockchain has the potential to save time and protect resources and business assets by bringing more transparency to the process.
Function = Auditability
Attorneys, government officials, mortgage brokers, and almost all players in regulated industries rely on contracts and documents that are filled with sensitive data and are governed by rules of compliance. There are often multiple parties with access to these documents, and more than a few people granted permission to make changes to them. Blockchain offers an audit trail that could be indispensable to these businesses.
Function = Privacy but Reliability
Plenty of businesses accept online payments, but a much smaller number consider payments processing to be the core of their business. Banks and financial services companies run on payments and processing, and a technology that enhances protection for the individual while still ensuring transaction reliability could be tremendously beneficial for them.
Who Doesn't Need Blockchain?
Many businesses might want--but not necessarily need--the kinds of benefits that blockchain provides. In the early stages of an industry, it is best for solutions to target enterprises where the problems solved are a core "must have," as opposed to a "nice to have." It is costly for enterprises to expend resources and disrupt operations when the impact is not meaningful to the long-term trajectory of their business.
Businesses should seriously consider the costs of "using a sledgehammer to kill a mouse." For example, blockchain could certainly enable e-commerce companies to verify sellers and goods, or could enable streaming media services to better track improper content usage for its providers. But, at the end of the day, these functions are not the primarily drivers of revenue and business growth in these industries. Blockchain implementation still requires a lot of hand-holding. Resources in these sectors would be better spent elsewhere.
This balance of interests could shift as blockchain becomes more advanced, but at all times, businesses must continue to ask these cost-benefit questions. And entrepreneurs would be wise to do the same before building solutions that chase lower level problems.
Let's fast-forward the hype cycle when it comes to blockchain and avoid labeling it a panacea for all business problems. Instead, let's focus on using blockchain where its benefits are the strongest match to the problems it is trying to solve, specifically where new software-defined processes can offer a new level of trust and accountability to parties with different interests.
In these cases, blockchain can be truly valuable, and even revolutionary. The sooner entrepreneurs learn this distinction, the quicker blockchain will be adopted, and the more sustainable that adoption will be.