The Next Likely Business Disruption

Blockchain is a technology that is essentially set to eliminate the middleman from many aspects of business and make big changes to our world.  This week, I’m happy to welcome logistics experts John Haber and Paul D’Arrigo of Spend Management Experts.

Logistics are at the core of business operations, and the changes we are already seeing in logistics are a great example of the sweeping effects that blockchain is likely to have.  We talk about new technologies, and how all of these changes affect middle market businesses.

Know Bitcoin and Blockchain

BitcoinBitcoin and blockchain are two words that get grouped together a lot.  They’ve been around at least in theory since 2009, so you likely have some idea of what they are. Before we dive in to how they are changing the middle market, here’s the skinny:

Bitcoin is a new kind of currency that was created in 2009 by a person or persons using the name Satoshi Nakamoto. Bitcoin is the first form of digital payment that is decentralized, allowing individuals to make digital purchases without an intermediary – so more like cash.  This decentralizing makes it more internationally accessible, even for those in countries that have less stable economic systems.

Bitcoin is kept track of through a series of identical ledgers that are managed by people known as “miners”.  Every ten minutes a “block” is sent to all of the miners that consists of all the bitcoin purchases made in the previous 10 minutes.  Miners then compete to verify the block by solving a coded problem, and the first one to solve it is rewarded with a few newly minted bitcoins.  The block is then added to the chain made up of previously verified blocks, and all the ledgers on the system are updated so that they are identical, and anyone in the system has access to viewing all previous transactions.

The system detects any discrepancies in individual ledgers, meaning hacking into the system is nearly impossible.  It would mean hacking separately into millions of computer lodgers to change them all identically.

Blockchain is the technology created to manage bitcoins, and while bitcoin was the first system managed over blockchain, its uses are endless.  Startups targeted at using this technology are springing up all over the place, and innovation hubs are buzzing with conversation about how to put it to use.

In blockchain, communication happens person to person, rather than through a central node.  Every node (user) on a blockchain is identified with a 30+ character alphanumeric address, and every node has access to the entire database.  All databases are updated whenever a change is made. Transactions made in a blockchain are permanent.  Records can’t be altered because they are linked to every other transaction record on the chain.

Explains D’Arrigo, “It’s a ledger that’s just out there in the world, and anybody can look at it, like the most open books possible.”

Blockchain Cuts Out Middlemen

And here’s where it starts to affect your business.  Our ways of doing business have, up to now, relied on trusted intermediaries to make things work.  Someone manages our records.  In the old Connecteddays it was the county courthouse, or the local bank.  As things have progressed, records have become more centralized, but still rely on intermediaries.

With blockchain, those intermediaries are eliminated.  With this highly transparent system, records are, essentially, self auditing, eliminating much of the need for external support of business deals.

Explains D’Arrigo, “In a real estate transaction, we need someone to be the escrow. They confirm that the party who says they own the property and are selling it, actually own it.  Then they confirm the funds and the buyers.”  With the open records of blockchain, none of these confirmations would be necessary.  This makes transactions easier and more affordable.

It also displaces a portion of the workforce.  One of the running themes of many of our technology articles is the need for our workforce to continually reinvent themselves by learning new skills.

Be Aware, but Don’t Worry

Don't panicMany of the initial uses of blockchain are financial in nature, and the financial world is responding.  Haber talks of initiatives by J.P. Morgan and Fidelity to work with the New York Stock Exchange to make more direct transactions through blockchain.   Fidelity is launching an initiative to track bitcoins in their investor portfolios, allowing users to easily include this form of currency in their overall financial outlook.  American Express has partnered with several bitcoin brokers to allow Amex to be used to purchase bitcoins.

While changes are happening, the amount of displacement and disruption is unclear. Blockchain technologies will affect the way we do business, but it’s not designed or expected to replace our current financial system.  Rather, it serves as a compliment to traditional financial systems, making some transactions easier and more transparent.  Bitcoin is also a highly unstable form of currency, so use it for easy transactions, not as a way to store your savings.

Know Where Blockchain is Showing Up

This HBR article mentions the possibilities for blockchain, including contracts “embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, Blockchaintampering, and revision”, the disappearance of intermediaries such as brokers and lawyers, and a transactional environment with less overall friction.

Other potential uses of blockchain include tackling the problems of human trafficking, blood diamonds, and ivory poaching.  The music industry will once again be shaken up with artists more able to sell directly to fans, and Sweden is currently experimenting with putting its land registry system on blockchain.

How Might the Changes Affect You?

Changes will be gradual, but there are things you could be doing now. The first is to evaluate bitcoin as a payment method.  If not for now, then potentially for later. You should also continue to watch for new ways blockchain is being used, and be open to ways it could support you in better serving your customers.  Technology should always be considered a way to meet customer needs, so be aware of ever-changing customer expectations, and ways blockchain technology can help you exceed those expectations.

Currently, blockchain might provide increased connections and transparency.  Says Haber, “Where we see these technologies help in the middle market is their reach – the customers that they can touch, and how fast they can touch them.   As well, we think it can provide more transparency into the price they should be paying.”

Blockchain offers a new foundation for the ways in which we do business, and should be treated as an exciting transformation in human interactions.  Be aware of its progression, and look for ways to begin to implement it in your business.  As always, your cues will come from your customers.

 

By | 2017-10-05T08:28:47-04:00 August 10th, 2017|0 Comments

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