Image via BTC Keychain/Flickr CC
Blockchain technology is at a critical juncture. After nearly a decade of conceptual life, the technology has begun to crop up in boardroom conversations.
Startups have already bet big on blockchain. Investors pumped $1.4 billion into blockchain startups in the last three quarters of 2016 alone, according to PricewaterhouseCoopers executive Seamus Cushly.
Despite IBM’s prediction that blockchain could create $100 billion or more in annual supply chain efficiencies, executives have been reticent to invest. At present, just 57 percent of enterprise leaders say they’re considering its corporate applications.
Why? Unlike technologies like virtual and augmented reality and the Internet of Things, which enterprises have eagerly embraced, blockchain isn’t flashy. It’s technically challenging, it’s uninspiring from a consumer perspective, and it offers an unclear value proposition.
Complicating matters, many of these executives know blockchain only for its early-bird application: Bitcoin. First described alongside blockchain in a now-famous 2008 pseudonymous paper is the eldest sibling in a growing family of publicly traded distributed digital currencies.
But Bitcoin is just the beginning of what blockchain has to offer. For enterprise companies, blockchain has perhaps more potential to improve operations than any other emerging technology.
What’s Holding Blockchain Back?
The biggest obstacle ahead of blockchain is executive understanding. Typically, executives’ objections to the technology fall along these three lines:
1. “We don’t see the ROI.”
While Bitcoin advocates will tell anyone who listens about their immense profits, executives doubt large-scale adoption will prove profitable over time. Many of these individuals don’t see beyond blockchain’s cryptocurrency applications.
Professor Christian Catalini of the Massachusetts Institute of Technology’s Sloan School of Management has researched blockchain technology and sees two primary cost reductions, neither of them involving alternative currencies.
First, blockchain all but eliminates the costs of verifying transactions, including the “where” and “when,” which could save companies millions of dollars over the next few years. Further, by forgoing intermediaries, companies can keep more money themselves, adding a couple of percentage points of profit to every purchase.
Reassure executives that information systems experts see value in blockchain’s record-keeping abilities. Not only can blockchain provide debit and credit records, but it can also produce time-stamped transaction records in real time. Per Accenture Consulting, blockchain could save companies up to 70 percent on central finance reporting and up to 50 percent on compliance.
To evaluate blockchain’s business potential, set up a trial. Give smart contracts a try, which can showcase blockchain’s record-keeping efficiencies without upending the company’s existing financial infrastructure.
2. “We’re worried about technical vulnerabilities.”
Especially given the constant corporate data breaches, executives are rightly concerned about whether blockchain can protect the company’s most important financial information. Gaining the trust of users remains one of blockchain’s biggest barriers.
Much like the IoT, blockchain is in the midst of a standards squabble. Without a common set of security standards, certain blockchain applications may run afoul of anti-money laundering laws. Also due to a lack of shared standards, executives often worry about user privacy and fraud. Random public keys can’t be trusted.
Fortunately, international standards for blockchain are in the works. In the meantime, executives can avoid accidental entanglement with money laundering and fraud through careful identity checks. Because the parties in a blockchain transaction are associated with public keys rather than names, the individual initiating the transaction should always verify the recipient’s key using identity data.
Assuming the recipient’s identity can be verified, however, blockchain offers unparalleled transaction security. Its security advantage lies in its straightforward transfer of ownership. An asset exists with one party, which approves a transaction to send it directly to another, cutting out third parties that could potentially pose security threats.
The same issue exists with any code, however. Secure code is essential in any enterprise technology, whether it’s blockchain, an IoT product, or a simple user portal.
The bottom line is that no online technology is totally secure, but blockchain requires no greater vigilance than any other. By exercising caution from the outset, blockchain can bring a host of benefits without unnecessary risks.
3. “The leadership team doesn’t have the capacity or interest.”
As with any technological upgrade, blockchain adoption depends heavily on advocates within the company. The more influential voices call for change, the quicker that change typically comes.
Change can be scary and disruptive. A Harvard study recently demonstrated that blockchain is indeed disruptive to traditional business models. No one is saying blockchain doesn’t take effort — only that the rewards are worth the investments.
Fortunately, change doesn’t have to happen overnight. While some startups are in the early-adopter phase of blockchain technology, most enterprises remain in the pilot phase. This parallels the adoption curve of many other technologies: Large companies slowly integrate rewarding disruptions from smaller firms.
The large companies that have begun investigating blockchain’s uses are already seeing results. Here at Dun & Bradstreet, we’re testing it to securely distribute content. Find a non-financial avenue to test it out, and executives may be more willing to give it a try.
A company on the forefront of innovation can’t wait for others to determine whether blockchain is a valuable business tool. It must take it upon itself to identify areas where blockchain’s benefits outweigh the risks, testing the technology carefully before pursuing broader implementation. CFOs can help steer these tests toward outcomes driven by data, but to do that, they must first begin the process.
Monica Richter is the chief content officer at Dun & Bradstreet, the global leader in commercial data, analytics, and insights for businesses. In addition to managing D&B’s global identity and editorial teams, she oversees its worldwide data operations, including data ingestion, compliance, and governance.
Formerly a senior vice president at Standard & Poor’s, Monica has more than two decades of experience managing and analyzing global market data. She holds an MBA in strategic management from the Wharton School of the University of Pennsylvania.