How Blockchain Adds Strategic Value to Business

Companies can determine whether they should invest in blockchain by focusing on specific use cases and their market position.

FREMONT, CA: Blockchain is the subject of intense speculation, with Bitcoin—the first and most notorious blockchain application—grabbing attention for its skyrocketing price and volatility. It is not unexpected that Bitcoin is the main focus of blockchain considering that its market value has increased over time from less than USD 20 billion to more than USD 200 billion. Blockchain technology is primarily being used by businesses and governments for Bitcoin transactions.

Several countries have released papers on the possible effects of blockchain, and only in the last two years, there have been more than 500,000 new publications on the topic and 3.7 million blockchain-related Google search results. Despite all the hype, blockchain is still a relatively new idea with a developing market and no established formula for success. Many businesses won't see a return on their investments as a result of unstructured blockchain testing without strategic evaluation of the value at stake or the viability of capturing it.

Blockchain does not need to eliminate middlemen to create value, which promotes permission for commercial applications. Prior to developing transformational business models, the short-term value of blockchain will mostly lie in cost reduction. Blockchain technology is still three to five years away from becoming practical at scale, mainly due to the challenge of overcoming the "coopetition" dilemma to create uniform standards.

It can be challenging to establish the truth given all the hype around blockchain. Blockchain is a shared database or distributed ledger that may be accessed by both public and private computer networks. There isn't a single point of failure because every computer node in the network has a copy of the ledger. Each piece of data is mathematically encrypted before being placed as a new "block" to the line of previous entries. Before a new block can be added to the chain, it must first be approved by other participants using one of several consensus processes. This avoids the need for a central authority and stops fraud or double-spending. Additionally, "smart contracts," a set of conditions stored on the blockchain, can be encoded into the ledger to cause transactions to occur automatically when the criteria are satisfied. Smart contracts, for instance, might be used to automate the payment of insurance claims.

Decentralization, cryptographic security, transparency, and immutability are the four main benefits of blockchain technology. Without depending on a third-party authority, it enables the exchange of value and the verification of information. The technology can be set up in a variety of ways to satisfy the goals and practical needs of a certain use case, hence it does not have a single form.