Blockchain Beyond the Propaganda: What is the Strategic Value Proposition?
Corporations can determine whether they should participate in Blockchain investment by focusing on explicit use cases and their market positioning and their business strategy.
Blockchain strategy should be integrated into business strategy and not just as a piece of cool technology.
Assumptions on the value of Blockchain is seem to be clear, with Bitcoin, the first application of Blockchain; taking headlines for its rocketing price and volatility and making some people very famous and rich and many others broke. With its market value from less than $20 billion to more than $200 billion over the course of 2017. Yet Bitcoin is only the first application of Blockchain technology that has captured the attention of government and industry.
In addition to this hype on Crypto-Currency, the investment and growth of Blockchain based startups has been very fast as well. It is important to know that Venture Capital Investment in Blockchain Startups is up 280% so far in 2018. As the crypto industry sees a decline in initial coin offerings (ICOs) amid regulatory concerns and major losses across token markets, traditional VC investment is once more on the rise.
Internet of Things (IoT) is becoming an important factor in Blockchain based projects and unlock unique use cases that can lead innovative ideas and platforms.
To make things very clear, we need to know that Blockchain technology and market is still in infancy and still in the beginning of the path. It is still very hard to show case the Return of Investment (ROI) for Blockchain initiatives compare to traditional solutions in the market place and indeed, they way that startups trying to de-risk the Blockchain initiatives still not very string.
Given these facts, the dominant Blockchain conversation is more around following value propositions:
- Reducing cost
- Transform business model
- Scale
- Transparency and trust
- Distributed vs. centralized
The dominant factor here is how fast organizations can harness the power of unique value proposition of Blockchain and how fast they can move forward with the digital transformation.
Now let’s go back to the basics and see what is the Blockchain.
What is Blockchain?
Blockchain is a distributed ledger, or database, shared across a public or private computing network or networks. Each computer node in the network holds a copy of the ledger, so there is no single point of failure. This will provide a distributed way of representing information to the network. Every piece of information is mathematically encrypted and added as a new “block” to the chain of historical records. There is a cost to add a new block to the Blockchain, so it will be costly and time consuming to add new blocks. So, if somebody wants to add a fake block, it will take huge amount of time to do such as task which makes it very very hard. Various consensus protocols are used to validate a new block with other participants before it can be added to the chain. This prevents fraud or double spending without requiring a central authority.
In addition, what makes Blockchain unique, is the concept of “Smart Contract”. Smart Contract is a set of conditions recorded on the Blockchain, so that transactions automatically trigger when the conditions are met. For example, smart contracts could be used to automate insurance-claim payouts, or automation of triggering complicated legal contracts between organizations when a triggers happen (e.g. when a sales contract has been signed).
Now that we know the basics, we can get to the value that Blockchain can offer to organization.
Cost Reduction
Operational efficiency will be one of the main ways organizations can harness the power of Blockchain by changing the way businesses think about record keeping, automation of smart contract, This can be the foundation of Blockchain adoption and a strong driver for moving towards this concept. Plus, by revealing lost revenues Blockchain can be positioned not only as a cost reduction solution, but as more strategic business tool to impact the recognized revenue for organizations.
- Transform business model
Blockchain can change the way businesses are dealing with their customers and suppliers. Moving towards customer experience or offering best products ever, Blockchain can provide values and use cases that it was impossible to even think about them before.
- Scale
Blockchain without scale will be no more than a pilot project and highly unlikely can impact the business. The scale depend on several factors such as technology platform, standards and ecosystem. Depending on the industry each of these factors can play more important role in offering scale to the organization.
- Transparency and trust
Blockchain by design, is setup based on transparent transactions and the fact that all the participants can see all the transactions, will position the organization in a place that they can gain the trust of their customers and partners.
- Distributed vs. centralized
Being a centralized authority and having full control over the transactions, vs. a distributed system which provide highest level of resiliency both at technology and business. We are living in an era that business continuity is a core strategy for organizations and Blockchain will be a great addition and enabler for this task.
Evaluating these aspects about the scale of impact and speed to market will reveal the correct strategic approach on where and how to compete to enable companies to start extracting value in the short term.
