According to Google Trends, the term blockchain is at peak popularity right now.
In large parts this is due to the explosion of crypto-currencies, with Bitcoin leading the charge. However the impact of the blockchain is much wider.
As the resident techie and CTO at Stratability, I thought it would be cool to talk about how blockchain relates to The Strategy Journey framework and especially the Operating Model, in relation to the way businesses and organisations run themselves.
Blockchain is big news and I’ll be exploring that in a blockchain series on the blog, with input from some of the co-creators of the book. These include industry experts in the blockchain field who are using this technology in some very disruptive ways.
But before I go into that in more details, let’s start with the basics and explain what is a blockchain, why it is revolutionary and how it can be applied.
What is a blockchain?
A blockchain is a time-ordered, list of of transactions (grouped in blocks) linked together, hence forming a chain.
These blocks are secured by cryptographic methods to prevent fraudulent attempts to tamper with the data, and replicated on every computer participating in the blockchain network, wherever these computers are in the world.
The participants of the network are incentivized to validate the transactions and bundle them into blocks. For this they’re rewarded in the form of new coins, transaction fees, or by becoming a stakeholder and having a say in the evolution of the network.
Why it is revolutionary?
The blockchain turns the prevalent paradigm of centralised trust on its head. What does that mean? We live in a world where we rely on organisations to hold data on us and what we do (like banking transactions and currency exchange) for centuries now. We have had to learn to trust our data with these organisations – that they are storing it and maintaining it and not doing bad things with it, or giving it away to others to use, and preventing malicious hacks into that data.
Julie Choo, Stratability’s CEO and the lead author of The Strategy Journey book has already blogged about the rise of data supremacy and the value of data, and trust me (no pun intended) blockchain will take this to another level.
Instead of trusting intermediaries to track and validate the transfer of assets for us (e.g. banks updating a bank account balance after a debit/credit, or a notary vouching for the integrity of a property land title – we will get into many more examples later), Blockchain promotes a form of decentralised trust.
This means trust in an environment where the participants transact directly (peer to peer) between each other, without knowing each other, and therefore without trusting each other. This trust derives from the properties of the blockchain: immutability, transparency and reliability.
- Transparency: visibility of the data on the blockchain is a precondition for the participants to be able to verify the data stored is valid.
- Immutability: the data on the blockchain is effectively immutable, once a record is added to the chain it cannot be modified (or at least it cannot be modified without expanding massive computational resources). Which means that falsifying or destroying the data is practically impossible and the participants can trust its content. Really good for audit trails!
- Reliability: since the data is replicated over all of the computers participating in the blockchain, failure of one of several of these nodes will not prevent other writers to commit to the blockchain
Removal of intermediaries will decrease friction and costs in business transactions, and also decrease any risks of the data being tampered with, either by mistake or fraudulently, once the data is stored on the blockchain. Did I just say ‘removal of intermediaries’? What will that do to certain businesses and organisations who effectively exist in the marketplace as ‘intermediaries’ to provide services along an industry value chain to customers? Yes – we have DISRUPTION!
And according to Julie in the book:
“This DISRUPTION is WHAT causes the need to reconsider HOW a business works or runs itself as well as entire industries, who value chains are being disrupted. Blockchain as a technology is disrupting the Operating Models of businesses.”
But she also points out that:
“Organisations can just be scared and let themselves get disrupted or they can embrace blockchain by working out how to use it as an enabler in their Operating Models. Blockchain certainly has the ability to replace many manual processes and hence the jobs of people responsible for these tasks. But it is also a job creator too, as it is generating jobs for people who need to understand the processes and data in order to use blockchain.”
We will discuss all of this in more detail in this series of blogs.
The total market capitalisation for crypto currencies is now USD 170 billion, of which Bitcoin holds the majority share.
The trading and use of bitcoin in everyday life is already so much bigger than many had expected:
- Each day more than USD 1 billion worth of bitcoins are transacted
- Since Bitcoin’s inception, there has been no noticeable downtime, no successful (acknowledged..) hacks of the data, and no crippling bugs.
- Furthermore, and more impressively, this was achieved through a decentralized network of computers, without a central authority (like government regulators) intervening to regulate the market and without the support of a bank infrastructure.￼
Cross border payments
While remittance charges have been on a steady decline over the last few years, they remain relatively high. The World Bank estimates the average remittance charge to be around 7%, with notable spikes at 16% when sending remittances from South Africa, and 10% from Japan.
A blockchain-based remittance could drastically disrupt this market by reducing merchant fees below 1% and guaranteeing transfer within the same day(or same hour). I wonder what these guys are all doing right now? Maybe they are investing in blockchain as part of their Operating Models. I hope so, as lower payment transaction fees means EVERYONE from merchants, operations, and customers WIN.
Traditionally real estate is mostly paper based and involves multiple third-party entities (governments, brokers, banks.)This is a breeding ground for high transaction fees, and in some cases corruption and land ownership fraud (eg. rental scams.)
Blockchain would reduce the number of intermediaries and therefore reduce costs and speed up transactions. Additionally by storing digital proof of ownership in an effectively incorruptible database it would cut down on fraud drastically. Going back in time and falsifying a transaction in not an option in a public and transparent ledger.
Accounting and Audit
As its core the blockchain produces a trail, where every transaction posted to the blockchain is verified, time-stamped and irreversibly recorded.
This could reduce a lot of the paper-based, manual checks and therefore decrease the probability of errors. In addition blockchain would guarantee the integrity of financial records and attempts at manipulating the records would become a thing of the past
Fizcal – accounting software that uses the blockchain technology
Most of us have face the age-old problem of banks and other financial intermediaries taking too long to validate our identity and opening our accounts with them. Having worked in the banking industry, some of our co-creators have it on good authority that in some cases banks are taking over 280 days to onboard a customer and open their bank account. I’m not kidding, and of course we can’t name and shame that bank because it’s a common problem and we know they are actively trying their best to fix that.
In fact, every single business out there has the need for identity checks, as part of the staff hiring process, to ensure you aren’t hiring a fraudster who might steal from you, or worse, from your customers, leading to lots of legal problems.
Yes, blockchain can really change the game here for recruiters and, well, everyone too in the employment process. You won’t have to keep using those low-cost people solutions offshore to do employment checks, where the very manual process frustrates the hell out of everyone including the employer, manager and employee. We will go into this as a case study in detail on a later blog in this blockchain series.
What’s clear is that a large number of companies are working on a digital identity solutions right now and, I expect, will be for a long time to come. This is testament to the enormous benefits that could be achieved by improving on the current KYC (Know Your Customer) processes which are expensive, low-tech and mostly (if not exclusively) paper-based.
Track the movements of tickets and prove to the end purchaser that the ticket is valid.
The list goes on and on… Virtually any domain (overly?) reliant on third-parties to manage their transaction records can be disrupted by the blockchain.
I think have answered that first question – What role does blockchain have to play in The Strategy Journey of a business or organisation?
It is a key enabler of the Operating Model of any business and organisation. With so many applications implementing blockchain can clearly cut costs and save a lot of time and money for businesses and organisations.
And it’s not just big businesses or large corporate with the heavy processes that will benefit. When blockchain is used with SaSS (software as a service) solutions, it can be made available to small businesses too in a cost effective way. We will cover all of these and more in this ongoing blockchain series of blogs, including case studies and some interviews with industry experts.
Should you use a blockchain?
If you don’t need to share data across multiple untrusted participants then the blockchain is of questionable value compared with a centralized database.
Even if the blockchain is applicable to your business domain, it comes with three major caveats:
1. In terms of performance most implementations lag way behind the performance of the traditional relational databases. While Bitcoin processes a few dozen transactions per second (TPS), Visa ™ processes 24 000/secs, and any modern database can reach a million TPS.
While the performance gap is significant now, there are a several solutions in the works which should help bringing the performance of most blockchain implementations in line with the competition. Again, I will be highlighting some of these in later blogs as I look into the technology.
2. Not everyone will be comfortable with storing potentially confidential information on the blockchain, with little to no privacy. Even if the data can be obfuscated, or encrypted, it remains that the more widely it is distributed the broader the scope for a malicious actor to compromise the confidentiality of the data.
Private (also known as “permissioned” or “enterprise”) blockchains could help in that respect. The idea here is to restrict access to the blockchain to a number of known and trusted participants, in charge or verifying (and more controversially, editing) the data on the blockchain. As a side effect, performance is likely improved since the transactions only have to be validated on a relatively small number of nodes running “on premises”, in an internal enterprise network.
3. Regulation. While technically and practically, blockchain and crypto currencies are not regulated today, and that was the point of it all, what happens if governments and central authorities intervene? Should they intervene for the greater good of society to ensure that we are all able to leverage of the benefits of blockchain, while mitigating all the risks? How can you plan for that? Recently, the Chinese government has started to put some restrictions on crypto currencies.
All of these questions are key to The Strategy Journey of your business and organisation, where ever you operate or play in the value chain and the greater business ecosystem.
Blockchain is here to stay… what will you do with it?
Blockchain and Operating Models and how they fit into your Strategy Journey will be a key area of focus for the writing and research for THE STRATEGY JOURNEY book. We will be publishing more articles on blockchain in the coming weeks to give a fresh perspective on how innovative technology like this can inform your Strategy Journey.
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Eric is also currently working with blockchain technologies.