Photo: iStock
Photo: iStock

How blockchains will change the way we do business

Businesses that are born on a blockchain will surely assume new forms, says report

Blockchains first gained attention as a platform for cryptocurrencies like Bitocoin. Since then, non-currency assets on the blockchain have grown 1,600% to reach $1.6 billion between 2013 and 2016, according to a new report by IBM Institute for Business Value that was released this month. The report suggests that blockchains will evolve over time and are potentially self-sustaining because of their distributed nature.

Businesses that are born on a blockchain, according to the report, will surely assume new forms. The most novel may be the capacity for an organization to act autonomously. As blockchain-based transactions become more sophisticated, the business network as a whole will achieve greater levels of autonomy, reducing the need for human governance and ultimately evolving into self-governing, cognitive business networks, the IBM report says. These autonomous organizations, effectively, will stretch our definition of what it means to be a dynamic enterprise.

Ledgers have been digitized but otherwise changed little, the IBM report notes, since these ledgers capture only a snapshot of a transaction at a moment in time. Bank X purchased or sold a mortgage, for example. The ledger does not record what happens next, what came before, or the role of others—partners, suppliers, consumers—in the transaction. It is also prone to human error and vulnerable to tampering.

Distributed ledgers, on the other hand, can be shared and updated in near real time across a group of participants. Every transaction becomes part of the permanent record and can be scrutinized by those that have permission—and relevant information can be shared with others based on their roles and access privileges.

Blockchains, thus, shift the paradigm from information held by a single owner to a shared lifetime history of an asset or transaction.

Supply chains are prime examples of blockchain’s potential for transformation that spans industries. Initial blockchain efforts could have quick impact by transforming even a small portion of the supply chain, such as the information used during importing. If import terminals received data from bills of lading earlier in the process, terminals could plan and execute more efficiently and without privacy concerns. Blockchain technology, the IBM report says, could make appropriate data visible in near real time—for example, the departure time and weight of containers—while making inaccessible the information about the owners and value of the cargo.

Costly delays and losses due to missing paperwork would be avoided.

Blockchains could also enable a robust and secure exchange for shared logistics, coordinating a vast array of activities from sharing spare space in a warehouse to optimizing truck fleets and shipping containers.

Retailers and manufacturers could greatly improve demand forecasting and stock replenishment. Financial institutions, armed with a detailed track record of a supplier’s reliability, could extend much-needed credit to fuel the trading industry. Regulators could trace the origin of goods from raw materials, making it easier to identify counterfeit items, as well as sources of tainted materials.

The value derived from something as fundamental as a blockchain-enabled bill of lading ripples out beyond the port of entry to span many industries.

The IBM report cites the example of US retailer Overstock.com Inc. that won government approval to use blockchain technology for the global issuance, settlement and trading of corporate bonds.

In another instance, Visa Inc. and DocuSign Inc. jointly registered cars on a blockchain and asked potential owners to step into the driver’s seat to configure lease options on the dashboard, receive a contract immediately and click to sign. New owners, who participated in this pilot, could then choose among insurance options and pay the first instalment directly. Future in-car payments, from downloaded music to parking to driver’s registration fees, are also expedited from the dashboard—all before the new owner drives off the lot.

The IBM Global Financing Unit, which facilitates credit among 4,000-plus suppliers and partners worldwide and handles 2.9 million invoices a year, also uses blockchain technology to reduce dispute times from over 40 days to under 10 days and free up about $100 million in capital that is otherwise tied up at any time.

To best extract value from blockchains, the IBM report recommends that businesses answer three questions:

1. How fast should I move? First movers and early adopters can position themselves for quicker returns and sharper competitiveness by leveraging blockchain efficiencies;

2. Can we achieve network-wide accepted standards? Success in blockchain adoption will depend not on who has the best technology or app, but who can build the strongest network; and

3. How can I scale with new revenue models? Although implementing new technologies may be daunting, understand how they can help your business profit and scale quickly.

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