According to experts, Blockchain is one of the most significant technologies to have emerged in the recent years. It is the technology behind Bitcoin, the most famous cryptocurrency in the market apart from Ethereum. Firms like IBM, Microsoft, Walmart etc. have been pursuing this technology; while venture capitalists such as Andreessen Horowitz, Kleiner Perkins Caufield and Byers have been making bets on incumbents and startups leveraging this technology to reduce costs and enhance efficiencies.
Blockchain’s capacity of making ledgers transparent and creating a trust between the unknown is revolutionizing financial services. It is expected that finance companies operating in the capital markets will implement blockchain as they can build a shared flat ledger. Using digital signatures, they will complete financial transactions (with encryption to keep data confidential). Apart from financial services, client onboarding and account maintenance are expected to see a surge in the implementation of blockchain technology which can store KYC data and reduce costs on KYC checks. It is being recommended that all sectors across geographies must develop a blockchain strategy, and on the way figure out applications which may not be a good fit for blockchain. As per a recent report by Bain and Company that implementing blockchain technology could save $15 to $35 annually. Businesses assisting in blockchain implementation include Accenture, Capgemini, Ernst and Young, Deloitte, Infosys, PwC, Polaris etc. with IBM and Microsoft being the leaders in cloud blockchain services.
Blockchain is a decentralized setup and a ledger accessible to anyone for viewing historical data, creating and validating transactions. When participants record activities, they (activities) are validated arbitrarily. For continuing this task incentives are required. Thus tokens are to be taken to execute assignments on the network (which are given as an economic incentive to those validating). Further, three aspects before implementation to be considered are:
- For using the ledger, the participants need to buy tokens at the market price which tend to vary due to still undeveloped ledgers and market. There are also monetary exchange risks/ repercussions when a company uses a decentralized ledger system than centralized or permissioned ledgers.
- Sometimes the validation process can be very inefficient due to activities being arbitrarily validated. To secure against ledger attack and prevent this form of validation, a large number of (industrial) large-scale miners are dedicating themselves to computing the complex calculations. Centralized parties have thus emerged; and decentralized validation may not be possible anymore as miners would now have complete businesses to lose.
- Third, if changes are required in public ledgers and open to community development, the changes will not be improved upon; as might be in the case of closely managed development. While all these are not huge flaws, they can impact businesses.
3 Stages To Blockchain’s Implementation
- Identification of a use case and a possible technology plan: A use case is considered as a methodology or a list of possible scenarios related to a goal and used for organizing functional requirements. This must be driven by customer value and for products that blockchain can be applied (for). For eg., if costs need to be reduced, blockchain technology can be implemented for saving money. Further, an architecture needs to be identified, IT budgets finalized, and deadlines and other internal/external sources used for implementing blockchain.
- Proof of concept: A document which proves that a product/service can be successful. The owner through PoC figures out if any technical or logistics issues can hinder the success of the product/service. This ensures lesser risks and an opportunity to choose on designs early in the development phase. Also, companies should start with something small, which does not affect the organization. PoC also defines how the product/service will support the business goals. It consists of the criteria for success, carrying out of PoC plan, evaluation and the next plan of action if PoC is successful. Real data is used at this stage but not real customers.
- Pilot study: In this phase, the application is rolled out to a few customers; with further products and data volumes for more customers to be added later. This is usually done on internal use cases as public blockchains cannot be used for testing. Once businesses use the software comfortably, they can implement blockchain projects. Eg. Nasdaq’s Link system which manages private market trade but not Nasdaq technology stocks on blockchain. Many Fortune 500 companies are working on Stage 2 or 3 of the blockchain technology.
Finally, a complete roll out at a much larger scale is executed.
According to a research, there are almost 300 blockchain/Bitcoin related startups across the world. They are developing technologies in the field of smart contracts, finance, storage, supply chain, IoT, retail spaces etc. An example is of Microsoft trying to test blockchain systems using Microsoft Azure with the banking industry consortium R3 CEV. Delaware is teaming with Symbiont to implement a blockchain based smart contracts system. CBA has partnered with Ripple Labs to execute the blockchain technology/ledger system for payments between subsidiaries. Blockchain is also taking place in remittances, healthcare, defense, government, luxury goods and supply chain management.
Implementation of blockchain technology is a demanding and tough process. It still needs to be explored in totality to understand its implications and reach. Nonetheless, it can be used as an open source software while being customized for specific organizational needs.