A How-to Guide to Defining Your Tailored Blockchain Strategy
Blockchain is poised to transform industries beyond finance, and now is the time to get ahead of the curve.
Unless you’re a banker or an avid investor, it’s likely that blockchain technology hasn’t been top of mind for you over the last few years. For those outside of the finance industry, blockchain hasn’t even registered as anything more than the technology powering cryptocurrencies like Bitcoin and Ethereum. But that’s all about to change.
As the technology matures, blockchain is getting more and more attention for its vast potential outside of finance. From Walmart’s use of the technology to track products across its supply chain to Mark Cuban’s latest messaging startup which uses it to improve privacy, blockchain is expected to shape the future across many industries. And this means one thing: Business leaders will be increasingly challenged to envision and develop their own blockchain strategy — figuring out how it is poised to improve their consumers’ lives and business operations within their organization.
However, to truly harness the power of blockchain, you must well understand three things: What the technology is on an elementary level, where the potential lies and what early adoptions are, and how to go about developing your very own strategy.
At its heart, blockchain is a distributed approach to validate and store transactions and data without relying on a central trusted actor. The benefit? Put simply, it creates a reliable, shared source of truth.
Here’s how it works: The technology thrives in scenarios in which diverse stakeholders form a network to mutually generate value in a peer-to-peer fashion based on a so-called smart contract, a set of rules that defines a valid transaction. The transaction history is stored by all participating parties in a “distributed ledger.” Given the high degree of distribution of all data, any potentially fraudulent tampering with the data or transactions by one party will be discovered and rejected by the other players of the network. On a very basic level this is how an immutable history of transactions is established. (Pause now. If you need more definition, see here and here.)
Such collaborative, transparent approach to data and transaction management is a key shift from the majority of today’s technology systems, which store data in a centralized database controlled by a single actor prone to fraud, malicious external intrusion and consumer suspicion.
Understand the business impact.
Accordingly, here are five business opportunities where we see blockchain having the most powerful impact in the near future.
The elimination of intermediaries. Many digital and offline business processes today involve one or more intermediary stakeholders to produce and capture value. Think of insurance companies and its brokers, investment institutions and its financial advisors, or credit institutes and their mortgage brokers. Among other attributes, the intermediary can inject trust, accessibility and simplification into a business transaction. In a blockchain world, however, the value proposition of intermediaries will be significantly reduced.
Think adtech, an industry filled with intermediaries, ready to be disrupted by companies such as MetaX which leverages blockchain to track advertising impressions more accurately and transparently for advertisers and publishers..
Faster digital transactions without a central actor. Centralized organizations or systems are often involved when stakes are high and an elevated level of trust, verification, and authentication is required. Think political votes, official administration documentation and transfers, money transactions. In today’s world, they are all largely supported by the instantiation of digital or organizational centralized actors that verify the validity and legitimacy of an action in a given system at the cost of speed, transparency and access.
This is where blockchain technology comes into the picture. With its distributed approach to recording and auditing any sort of a transaction based on an agreed upon contract, even transactions requiring high levels of authority and verification can be executed in a trusted environment. The possible consequence? Today’s highly bureaucratic and time-consuming processes such as transferring the title to a piece of land may soon be possible with the ease of your phone which just a few taps which is just one use case of Dubai’s blockchain-based smart city project.
Increased consumer trust through a shared source of truth. Digital and offline consumers are growing increasingly conscious of the value chain behind the products they’re considering purchasing. Both from a perspective of where the product is being produced as well as the labor and production conditions involved in making it. Enter an intriguing combination of blockchain and smart packaging to enable a whole new level of transparency.
Imagine a group of diverse authorities creating a distributed network to govern and audit the manufacturing history of every good produced by a certain manufacturer. The network could then provide insights into the value chain for individual products that consumers can trust. This is precisely the scenario that a company called Provenance has brought to reality for the tuna farming industry. The company gives grocery shoppers and restaurants the opportunity to track a fish’s path from where it was netted to the individual fisherman who caught it, using smart packaging and a mobile app.
Availability of digital identify wallet for verification and improved data control. The concept of a ubiquitous digital ID wallet for end consumers has been a near-reality for at least a decade. However, initiatives around it have struggled to overcome the challenge of a bullet-proof security system to store such sensitive data as your social security or healthcare information. Blockchain could be the technology to make a digital ID wallet a reality.
Its distributed storage model offers a combination of attributes such as trust, transparency and immutability that simply has not been available in the past. SecureKey, an initiative currently being piloted in Canada, is a government-verified personal ID wallet that allows a participant to sign a lease for a new apartment or sign up to a mobile phone plan without the friction of having to sign any paper documents or the need to provide identification in person.
New monetization models through cryptocurrencies and micropayments. The expected positive impact of cryptocurrencies on digital trade are plentiful: Payment with cryptocurrencies holds the promise of significantly reduced processing costs in B2C commerce compared to today’s dominant merchants such as Visa or Mastercard. Further, payments occur in close to real-time and cryptocurrencies do not impose the same costly national boundaries such as local currencies.
Beyond these widely-known benefits of cryptocurrencies lies an advantage that has potential to transform business and monetization models: micropayments. With cryptocurrencies, it is possible to exchange very small fragments of currency value with little overhead or costs. Imagine a world of social media in which high-value content providers receive micropayments by platform provider everytime they post a popular and highly shared update. A new concept to social media considered promising enough for Amazon to launch its own social network called Spark this month on exactly such paradigm.
Develop your blockchain strategy.
Create a vision.The key to effectively leveraging blockchain at any organization? Vision — figuring out how your organization can leverage the technology in a unique way to create and capture additional value. The first step: Ensure that you are focusing on real problems to be solved versus starting at the solution and finding what may be an artificially created problem.
The best way to get on the right track is to get your team up to speed on the technology and use cases and then workshop. Don’t fall into the trap of isolating the group to your C-tier, digital, technology or innovation groups; ensure that you have representation of individuals across your value chain including sourcing, production, operations and marketing. Consider the following discussion points with your teams:
- Where is the organization currently using intermediaries that could be replaced with blockchain technology in favor of reduced costs and a more direct consumer relationship without compromising the quality of your product or services?
- Where do business operations currently leverage a central actor paradigm that may cause friction and latency? How could those central actors be replaced through a trusted distributed network and what could be the outcome?
- Where within your value chain is trust and transparency particularly relevant and driving business results? Could the level of trust by intermediaries or end consumers be enhanced by including external actors for validation following a shared-source-of-truth model?
- What is the potential of digital ID blockchain wallets for ease of digital verification and authentication within your business model? How does a more empowered end user in control of their personal data change your operations?
- Where do cryptocurrencies and micro-payments fit into your vision? What are current traditional monetization models that could be transformed with micro-payments?
Ensure that you and your team are thinking about these questions not just from an internal perspective but how blockchain could de-risk your business. Consider how potential market disruptors in the form of, say, startup companies could leverage blockchain in the future to cut into your market share and develop appropriate response strategies.
Identify a low-risk pilot project. The above workshop would ideally result in a set of backlog activities, including doing further research in one particular area or exploring a concrete opportunity of blockchain application in another. We recommend a prioritization exercise that identifies at least one pilot project for immediate kick-off and exploration. Ideal candidates are projects that are relatively low-risk as it relates to the impact of them failing but still provide a profound exposure to the blockchain technology with a positive business impact that is believed to be real and visionary.
An iterative project approach is highly recommended, including heavy prototyping to validate the project vision early. It’s also a good idea to think about the opportunity to pivot based on the still ongoing evolution of the blockchain technology and its services and product landscape. Aim for an initial project launch in a test environment within the first three month to review and extend funding and make sure you assign a cross-disciplinary team including strategic, creative, product, data and technology resources.
Decide on external vs. internal build-out. Based on the technical sophistication of your team, the pilot project could be executed in three different ways. One, by your internal team leveraging open-source blockchain frameworks such as Hyperledger building out a very tailored implementation for your organization. The benefits of this approach are the associated knowledge building of blockchain capabilities within your team at the cost of a likely more extended timeline.
Alternatively, you can trust an external blockchain platform or service provider to carry out your initial pilot project. Given the early stages of the industry product providers are particularly eager to team up with organizations to prove the success and potential of their offering, resulting in free trial periods or significantly reduced startup costs.
A hybrid solution is available by pairing and integrating your internal team with a product or service provider experienced in blockchain to enable your team but also bootstrap your pilot with external subject matter expertise and prepackaged blockchain technology.
Baseline, measure, monitor. Prior to starting your pilot project make sure you collect any data relevant to baseline the performance of the current process you are trying to impact. Ensure that you have a clear measurement strategy planned and executed once your pilot project launches and agree on the central KPIs for both the current benchmark and blockchain-driven experience. This will allow for an objective, quantitative analysis of the return on investment of your pilot project considering opportunity and implementation costs.
Lastly, ensure that you have resources allocated to monitor the blockchain space for new business potentials and case studies from early adopters to constantly evolve your vision on the latest state of the technology.
There is no doubt among industry experts that blockchain technology is here to stay and will have a transformative impact on organizations over the next decade across industries and departments. And while it must be acknowledged that the technology is still in its early stages and facing the usual growing pains, progressive organizations need to layout their foundational blockchain strategy today to sharpen their focus and ensure future success.
Magenta is a publication of Huge.
