I’m going out on a limb and making a prediction: You’ve already heard a lot (maybe too much) about blockchain. But even if you understand all the benefits this technology offers, you, like many C-suite executives I know, may be skeptical about blockchain. To be honest, I don’t blame you.
Blockchain is a complex technology that does its best work behind the scenes. Unfortunately, its most famous application, Bitcoin, doesn’t inspire a lot of trust from corporate America.
But while Bitcoin racks up headlines and controversy, blockchain is gradually building credibility in the business world. Gartner recently forecast that this technology will add more than $3.1 trillion in annual business value by 2030, and that’s a prediction that warrants taking a serious look at blockchain.
Here’s more good news: In a recent PwC survey of 600 global business executives with technology responsibilities, we learned that 84% said their organizations have some involvement with blockchain. That’s despite the numerous trust issues they expressed around regulatory uncertainty, user understanding and acceptance, and challenges working with new collaborators.
Meanwhile, investors poured $13.7 billion into initial coin offerings (ICOs) — a way to fund blockchain investments — in the first five months of 2018.
Getting On The Blockchain Bandwagon
A well-designed blockchain can give businesses most of what they want from a new tool: It can cut out intermediaries, reduce costs, increase speed and reach, and offer more transparency, security and traceability. Most importantly, it can build trust.
Imagine a multinational with a sprawling supply chain that’s able to follow every component in the chain through every stage of transport while having encrypted access to information on provenance, regulatory compliance, certifications, traceability, taxation and more — along with continuous auditing and validation. Blockchain can do all that.
Is the consumer at the end of that chain worried about pesticides in food, quality control in medicine or working conditions in a factory? Blockchain’s potential for transparency could resolve these concerns.
Thanks to tokenization, nearly everything a business does — from negotiating contracts to making payments, from processing insurance claims to sourcing airplane parts, from tracking food at the farm to monitoring it at the supermarket checkout — can be represented on a blockchain. Within the confines of a single organization, especially a sprawling multinational, blockchain for intercompany processes is a high-potential application. For example, a company could create an internal digital token to represent cash to transfer value internally. Instead of bank transfers, currency conversions and multiple emails about each transaction — a process that takes several days — the tokenized cash transfer can be conducted in near real time and allow users to track each transaction’s progress. Applications like these are still largely in the development stage. Global energy company BP, for example, is one of the few companies that has publicly discussed such an initiative.
Blockchain also has a place as ERP’s partner, by offering companies a single, trusted source of truth. The powerful combination of ERP and blockchain will enable companies to streamline processes, facilitate data sharing and improve data integrity.
What’s Holding Back Businesses?
For all the interest in blockchain, only 15% of the respondents in PwC’s survey have gone all the way to a live blockchain implementation. What’s holding the others back?
So why the holdout?
When we asked our survey respondents to list the barriers to blockchain adoption in their industry, the top three were regulatory uncertainty, lack of trust among users and concerns about whether they could build a network. David Roe of CMSWire.com also notes that legacy infrastructure, scaling limitations and legal complexities, among others, are barriers to adoption.
I understand these concerns. Before greenlighting an investment in blockchain, business and technology leaders must trust blockchain to perform as designed and keep data safe. And building a blockchain ecosystem requires participants (who may be competitors) to agree on rules for data governance, how to share costs and benefits and more.
How To Build A Blockchain
Blockchain is still relatively new, but we already have some ideas on how to overcome the major trust barriers.
First, start with a clear-cut business case — preferably something small but scalable — that can deliver measurable benefits quickly. Involve your risk professionals from the start, and update your data governance policies and processes. Engage with potential business partners through consortia and industry groups.
When it’s time to start building your blockchain, be sure to establish strict controls over access and data permissions, and apply a risk and controls framework to proactively address risk concerns. Anticipate future compliance requirements in a still-evolving regulatory environment by looking to existing regulatory guidance. And engage with regulators and industry groups to help shape future policies.
Here’s one more piece of advice: Don’t wait too long to get started. Blockchain’s power grows when it’s part of a network, and first-movers usually get to determine a network’s rules. First-movers with blockchain could have a big competitive advantage, and that’s an opportunity you won’t want to miss.