The Breakdown
Why is it relevant?
Bitcoin, with its rocketing price and volatility, has attracted worldwide interest in recent years, but it is blockchain technology, which underpins bitcoin and other cryptocurrencies, that has the potential to remake the foundational aspects of the traditional business model.
What exactly is Blockchain?
Picture a ledger that can be viewable and shared across networks of computers. Imagine that this network is designed to update the ledger in real-time. That is basically how blockchain works. The most special thing about it is that blockchain has no central authority. Once a transaction is validated, the record is stored in the database permanently and irreversibly. Each node of the network has access to the entire digitally encrypted database, and no single member can control the ledger. In this way, blockchain establishes a copy of asset provenance and transaction history, which is both transparent and secure. Apart from public blockchains, which is decentralized networks like Bitcoin, blockchains can also be private. Blockchains with permission can be used to hold important information within a company, with controlled access and editing rights.
The Impact of Blockchain on Business
These features of blockchain technology can provide solutions to inefficiencies and frictions throughout conventional trade process as mentioned in the beginning.
Everybody wins
Blockchain enables parties to transact directly to each other (P2P transmission). The database itself can be used to confirm identities, make time stamps, process transactions and create records, which can largely reduce cost and minimize potential fraud. Additionally, through eliminating intermediaries such as banks, brokers and distributors, blockchain can also allow small or illiquid businesses that are previously excluded by high transaction costs to participate in the market.
Dealing with the law has never been so easy
The database can also be programmed to engage “smart contracts” — a set of digital codes recorded on the blockchain to represent predetermined rules. When the rules and timing are met, transactions will automatically be processed, which helps minimize potential legal disputes over whether a contract has been fulfilled. One prevailing practice for smart contracts is to automate insurance-claim payouts and certain licenses.
Given the potential to streamline transactions with lower cost, blockchain and smart contracts can further facilitate a more flexible marketplace for international trade. Participants install a blockchain-enabled mobile app that can manage requests and interact with customers in real-time, regardless of distance. It can also automatically generate smart contracts based on users’ transaction history such as price preferences and favourable exchange rates that are stored in the blockchain database. This way, international traders will have more flexibility to adjust supply to better match demand or respond quickly to real-time price signals.
Our Recommendations
Advice on how to get the most out of Blockchain
Blockchain technology has the potential to provide the infrastructure for a more transparent network to manage transactions, multinational sales, and distributions, which address the pain points of the traditional value chain. However, the technology per se is still immature, and there are more questions associated with feasibility, security and governance. Experimentations and investments in blockchain technology without a strategic evolution may result in no returns.
Our research combined expertise and practices from leading companies seek to offer the following two takeaways on capturing the strategic value of blockchain:
Identify the varying opportunities across major industries
Certain industries’ infrastructure is inherently more adaptable to blockchain models. Financial services, public sector, and healthcare are predicated to capture the greatest value. Blockchain’s core advantages in verifying and transferring information closely align with the main business in the financial industry. Similarly, these functions can help save substantial administrative cost for government agencies.
Healthcare is also able to benefit from exchanging medical research and records among patients, researchers, insurers and government efficiently. These opportunities have reflected in the facts that about 90% of primary banks in Australia, European and North American are experimenting with blockchain technologies. Also, more than 25 governments are actively supporting blockchain start-ups. And a successful application in healthcare has been realized at Deloitte.
Permisssioned Blockchain is more likely to succeed
