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So Friends Of Friends Tell You Your Business Should Be On Blockchain

Every consultant and every youthful new hire has been telling you your business should be using blockchain.  Are they right?  Not necessarily.  But maybe.

It depends on your business.

There are, broadly, three categories of businesses that could benefit from a distributed blockchain-structured ledger.

  1. Businesses that aren’t looking to reinvent the wheel but are restructuring the way they handle data anyway and would like to use the most up-to-date methods.
  2. Businesses who rely heavily on third parties to validate transactions, track inventory, or whose product is frequently forged.
  3. Businesses who respect their customers.

But before we address whether distributed ledger technology (DLT) would benefit your business first consider whether you can afford to overhaul your data systems.  As with any changes to your business it’s going to be an investment.  Although bitcoin has been around for many years now, practical uses for blockchain tech, beyond simple currency, are still in their infancy.   This means your in-house developer won’t be as agile as if she were developing on a platform that has been around since the 90s.  Consequently, development costs may be higher than if you opt for a conventional program with a well-established name behind it.  On the other hand, it’s likely that after your initial investment you may be able to shave off long-term costs via decreased network inefficiencies, automatic data validation, and lowered transaction fees.

Now that you’ve decided the time is right to try to streamline your business, the next question is whether you stand to benefit from a DLT platform.  Let’s take a brief look at each type of business that could benefit.

You want to get current

Many people accept that anything that can be done with a traditional centralized relational database can be done with a blockchain and vice versa.  Generally it is possible to get something like byzantine fault tolerance (meaning the system can handle mistakes) with a classic database by building in redundancies.  Of course, each redundancy adds cost.  Conversely, blockchain’s fault tolerance is intrinsic.  Because hundreds or thousands of computers are independently validating the system’s information, one network glitch or one nefarious actor has a much more difficult time being written into the ledger’s history.  (Indeed, in most cases many network glitches or many nefarious actors would have a difficult time being written into the ledger’s history.)  

While blockchains have an edge when it comes to byzantine fault tolerance, centralized networks tend to operate at a speed that blockchain platforms have a difficult time replicating.  Because mining (the process by which the transactions are validated) requires a certain amount of computer processing it takes time, in some cases 30 minutes or more, to authenticate a command sent to the blockchain by a user.  This is adequate, although not ideal, if you want to transfer the deed to a house but completely unacceptable if you want to notarize computer processes or buy a cup of coffee.  While some blockchain platforms specialize in speed, jury-rigging special workarounds, these workarounds are generally MacGyvered-on, not intrinsic to the platform.  

Validation, distributed blockchain’s core strength, also can be done in a conventional system.  We have banks.  We have title insurance.  We have our trustworthy cousin.  While it’s uncomfortable for many to put their trust in a third party, thousands of years have been spent nuancing systems using intermediaries.  If it’s not a central part of your business, the occasional notary or bank officer won’t disrupt your workflow or break your budget.

But just as most experts would tell you that anything that can be done with DLT can be done with centralized systems, those same experts will tell you which way the wind is blowing: decentralization.  This brings us to the first reason to switch.  If you’re overhauling your system anyway and you’re wondering which platform to use, a decentralized ecosystem is the direction all major businesses are looking rather than an archaic centralized Excel sheet.  Weighing the pros and cons presented above, it may be in your best interest to build toward tech that will be ubiquitous in 5-10 years rather than relying on yesterday’s status quo.

Your business is data validation

While the pros and cons of a decentralized system are a wash for many businesses, DLT winning out primarily on its future use, the story is different if validation and trust are central to your business model.  If your business is authentication get on the chain.  If your business is eliminating fraud get on the chain.  If your business involves a supply line wherein you take your business partners’ word for location of inventory get on the chain.  If dealing with a financial institution, a bank, or any intermediary is a large part of your business or if you pass information back and forth within your company in a way that can be corrupted or tampered with run, don’t walk, to the chain.

When your business deals with someone you don’t know, how do you prove that you have the money to transfer?  How do you prove that it’s your house to sell?  How do you prove the code you run falls within the rules you set up?  That’s where the intermediary comes in.  Essentially someone checks your math.  Normally you would trust Chase bank to pass along your transaction (while they charge a fee).  Normally you trust your marketplace to host your product without listing other, less expensive items on your home page (I’m looking at you, Amazon) again at a cost.  With a distributed validation system multiple parties (nodes) check your work, pass along your information, and tell others that your word is, in fact, trustworthy.  These validators have no interest in your particular business.  They are incentivized not based on who is passing what data to whom, but their incentive comes from making sure the whole system runs smoothly.  Most distributed blockchains have some sort of “transaction fee” in order to keep users from breaking the network by deliberately bombarding the platform with malicious transactions but this fee is an absolute steal when compared to what banks and notaries charge, and your cousin has his fingers in everything..  

If your business involves data validation DLTs are much, much more efficient.  You gain surety on your end, your partners and clients can trust you, and vice versa.  Does this coffee grower actually own the beans they’re selling you?  Check the chain.  Do your clients wonder whether they’re buying your product or a knock-off?  They can check the chain.  How does a mall scanner know if the inventory leaving has been purchased?  It checks the chain.  How do you know that an ID card is real and not a forgery?  Your security checks the chain.  Who does that car belong to?  Has the mileage been tampered with?  Check the chain.  The ways in which the blockchain can improve businesses whose day-to-day activities involve some form of trust are myriad.  If yours is one of them, get on the chain.

This brings us to a very specific category of business, companies whose model is to be the intermediary.  The conventional transaction validators.  The notaries.  Your cousin.  What’s a cousin to do?  Get on the chain.  Distributed blockchains will change the nature of your entire industry.  Fortunately, you are still an expert in validation.  It’s you who knows the local laws.  It’s you who knows which types of products are most often lost, forged, corrupted.  You have all of the specialty knowledge that surrounds the validation process.  It’s time to put it to use.  One way or another, your business is going to be challenged if you stick to a conventional system, either by a grass-roots push to eliminate unnecessary intermediaries or by another entity in your field that gets on the blockchain bandwagon before you.  Now is the time to go.  You can use your specialization to make sure your clients are using *your* blockchain technology, wrapping it in your experience, your connections, and your brand.  It’s either an opportunity to be a leader in your industry or it’s a rapidly accelerating train you’ve decided not to board.

You respect your customers

A selling point to your average Jill and a sticking point to your average company whose trade is information, is that DLTs put control of data in the hands of individuals.  Because blockchain typically uses technology that allows users to show the data they want to show and hide the data they want to hide each user’s account can be theirs, untouchable and incorruptible.  If a user needs to prove to a local shop that they live in the area there is no reason that the shop needs to know their address, only that they live in the area.  Presenting a validated transaction on the chain, someone can show that their address exists without showing what their address is.  Presenting a validated account can show that they have sufficient funds without showing the specific amount of funds in their possession.  They can prove to your customer service that they are, in fact, a preferred customer without having to give the customer service rep their birthdate and social security number.  Additionally, your customer can be secure in the knowledge that their data is safe — even from you.

With a DLT platform you can assure your customer that not only will you not sell their email address, but you can set it up so you are unable to.  You can build your platform so that your customers’ browsing habits, IP, physical address, website splash page, it all belongs to them.  Of course, they can always give you permission to access any of it if you ask.

Why would you do this?  Customers today are becoming savvier about their data, how it gets used and who profits from it.  The Facebook violations of 2017 make it crystal clear both how the data can be misused and how that misuse can be dangerous.  Borrowing, rather than owning, a user’s data should be adequate for almost any practical purpose and users know it.  While companies will almost certainly find a way around this, there is a movement to give control of data back to the user and the only solid argument against it is profit-based misuse.  Respect your customers?  Get on the chain.

Were your friends’ friends right?

There are good reasons not to jump on the blockwagon right now.  Like with any big change, system development will not be inexpensive.  You need to carefully research your platform of choice to be certain that transaction rate is adequate for your purposes and that the cumulative fees are less than your current operating costs.  Additionally, you need to be sure the platform you choose can scale as your business grows and as others jump on the new tech.

Ultimately, though, if you’re building a new system, if your business is based on data validation, or if you respect your customers your advisors are likely right.  You might want to get on the chain.