Sponsored Sponsored Content

The Risks and Rewards of Blockchain Technology


This content is sponsored by Business World.

Blockchain has been touted as the most disruptive technology to hit businesses since open-source software—or, some say, since the internet itself.

As a new way of sharing information, this electronic ledger has the potential to save countless hours of administrative work while optimizing processes and shortening time-to-delivery by leaps and bounds. Originally created as a way to manage Bitcoin, the tech community is fast discovering new ways in which blockchain can be useful. Some say, in fact, that it’s on track to becoming the basis for an entire socio-political system.

Why blockchain is important to network management

Contracts, records, databases, and today’s endless volumes of transactions form the basis of the systems the entire world runs on. They define borders, laws, bylaws, countries, cities, communities, identities, marriages, births, and deaths. It’s ironic that the very fabric of what we know is built upon these records, but those very records and the systems that contain them have not yet caught up with today’s digital reality.

This is the problem that blockchain solves. In an overarching way, this example is a much more expansive way of looking at network management.

Databases are a core tool in network management. Blockchain is, essentially, a database. However, this database — and all its transactional data — can be shared freely among stakeholders. It stores a permanent record of every single transaction embedded in digital code. This code can’t be tampered with, deleted, or revised in any way, unless a certain set of criteria are met. When this happens, a pre-determined transaction will ensue.

So, if a blockchain infrastructure were to be deployed to protect our transactions and automate our processes, it would effectively signify the death of the middleman. There would be little need for attorneys, bankers, brokers, real estate agents, and various other intermediaries. The friction that would normally arise from a poorly defined transaction – one that required a professional to make sense of it all – would be a thing of the past. Efficiency, expediency, transparency, and bulletproof results would become the norm.

But this revolution isn’t going to happen overnight.

Even though blockchain is disruptive in its own way, it is more of a foundational technology: it provides a solution, but it’s not an instant fix for anything. It’s going to take us years to establish just how it should be configured and deployed. It’s more likely that the change will be slow and methodical. The rest of our technology — and our thinking — is bound to go through its own changes along the way, but chances are that blockchain will be a big part of wherever we’re headed.

Business benefits of blockchain technology

Blockchain presents an array of business opportunities, but much of this potential has yet to be fully fleshed out. At its core, blockchain has the potential to ensure transparency in core business functions. By eliminating the grey area normally occupied by supply chain management, regulatory compliance, taxation, audits, and back-office functions, processes are simplified, timelines are shortened, and human error is eliminated, as is the need to manage all of the above.

Due to significantly simplified and shortened transaction timelines, the number of automated transactions we can process will grow exponentially, affording us virtually limitless business potential. Because records and identities would be completely transparent, identity management will be absolute. As a result, identity fraud may well become a thing of the past.

Blockchain types

There are two basic types of blockchain networks: they can be either permissioned or permissionless.

Permissioned blockchains

Permissioned blockchains operate through the encoding of “smart contracts.” Smart contracts allow for a ledger to be accessed by a pre-determined network of users (a company or a board of directors, for instance). The terms of the contract can then be configured to do certain things when specific conditions are met, just like an actual contract, but the transactions are automated and can’t be faked. Transactions are triggered by data from other smart contracts or through data received from outside sources called oracles.

For instance, using Ethereum (a blockchain platform and the foundation for the cryptocurrency Ether), you could launch a crowdfunding campaign to attract investors who would then place their money (in cryptocurrency) in escrow. If and when a pre-determined transaction or milestone takes place, the money is released. If said transaction does not occur, the money is returned to the investors. Everything is completely transparent, secure, and above-board — all without a bank, a lawyer, or anyone to complicate matters or take a cut.

However, smart contracts present a risk in themselves. As financial transactions, legal documents, and agreements can be stored on the blockchain, there would be risks involved in the transfer of this information from the physical to the digital realm. A company wishing to mitigate this risk should look closely at their data governance policy and their framework of controls.

Permissionless blockchains

Permissionless blockchains allow any user to participate in the network without any clearance on the part of the administrator, and that could present a significant risk for obvious reasons. There are some risks, however, that may not seem so obvious.

For instance, companies would still be at risk for the very same reasons they are today — but with a blockchain mechanism, the evidence would be black and white. Companies will need to give this some detailed thought before committing to the transformation.

Blockchain also supports the transfer of funds without a middleman. This could be real property, assets, information, or identity. Risks that were, in the past, handled by an intermediary would now instead be taken on by the transacting parties – likely without insurance and without recourse if things went wrong.

In conclusion

As with all great leaps forward, we need to be aware of the risks of rushing in. While research suggests that blockchain will be worth $176 billion by 2025, we have a long way to go before the technology standardizes.

Blockchain tech is currently represented by a disparate collection of platforms, some of which have been described as “buggy.” Investing in blockchain will be smart (and probably necessary) at some stage, but we shouldn’t be in too much of a rush. The destination is like Oz right now: it’s shiny and alluring, but it’s further away than it seems.

If we compare where we are right now with blockchain to where we were when the internet was in its early days, right about now we’d still be excited about getting our Netflix DVDs in the mail. We would still be loading new software into our computers from CD ROMs. That’s how far we’ve come, and that’s at least how far we have to go before it all settles out.

If you are doing business in Arkansas and are interested in what blockchain can do for you, schedule a consultation with Business World today.

Leave a Comment