Blockchain is used today across multiple industries for payment processing, supply chain and logistics management, data sharing and backup, connected-device management, copyright protection, tax compliance and other functions. The distributed ledger technology also is being deployed for industry-specific uses such as title transfers, prescription drug tracking and equity trading. There even are companies selling blockchain-powered smartphones!
Developed to support bitcoin and other cryptocurrencies, blockchain can offer enterprises greater security and transparency, increased efficiency, better inventory management and lower costs. These and other benefits, along with blockchain’s versatility, are expected to drive the global blockchain technology market to $23.3 billion in 2023 from $2.7 billion in 2019.
But does all this mean blockchain is right for your organization? The answer is: It depends. Every organization’s needs, resources and situations are different. Here are five questions enterprise leaders should ask before deciding whether to launch a blockchain initiative.
1. Can blockchain solve a real business problem?
If enterprise decision makers had to ask just one question about blockchain, this would be it. There’s absolutely no rationale for plunging ahead with an expensive (and potentially disruptive) blockchain project without a sound business goal, whether it’s to increase the speed of transaction processing, reduce shipping times, or eliminate brokers and intermediaries. The World Economic Forum has a helpful tool that allows enterprise leaders to conduct an initial assessment regarding the use of blockchain.
2. What type of blockchain would be appropriate?
As with cloud computing, there’s no single type of blockchain. Should enterprise decision makers agree to launch a blockchain initiative, they next must determine which flavor of the technology to implement. There are several basic options for deploying blockchain:
- Public (open) blockchain platforms
Bitcoin, Ethereum and other public blockchain networks are built on open source code and are available to any users. The decentralized and transparent nature of public blockchain networks eliminates the need for trust and ensures verification of transactions and data. Drawbacks of public blockchains include slow processing speeds and lack of scalability.
- Private (permissioned) blockchain
Fewer users mean faster transaction processing and more scalability than are offered by public blockchain platforms. Private blockchains, however, require user authorization and may impose restrictive permissions.
- Do it yourself
Some organizations may opt to build their own blockchain platform. This allows for customization, but it also requires development time and costs, along with other ownership challenges, such as ongoing network maintenance, skills acquisition and training.
- Blockchain as a service
An excellent way for enterprises to test blockchain in a controlled environment is through a cloud provider that supports sandboxed development and deployment.
3. What resources are needed for a blockchain initiative?
Once enterprises have decided on a blockchain platform, they should conduct a resources assessment. Does the organization have sufficient development skills in-house? Who can take the lead on the project? How much budget is available? The answers to these questions may alter the decision about which blockchain platform to choose. By accurately gauging the resources necessary for a blockchain initiative, organizations can get a handle on the true costs of each platform option.
4. Are competitors gaining (or likely to gain) an advantage by leveraging blockchain?
While decision makers first and foremost must identify a business problem before going down the blockchain path, they should also be aware of how competitors are using blockchain. If your competitors are increasing efficiency, serving customers better, and lowering operating and transaction costs, there’s your business problem.
5. How will you measure success, particularly return on investment?
This should be determined in the planning stages. Decision makers must identify performance goals and the metrics by which progress toward those goals is measured. These can include operational costs, transaction processing times and supply chain efficiency. Blockchain benefits such as transparency, traceability and security may be harder to measure. Other factors determining blockchain’s return on investment include power rates (which can vary by demand, availability of generation sources, fuel costs and other factors, and may also change over time), computing power and storage requirements, and the skills needed to manage a blockchain environment. If an organization has insufficient compute power, storage or blockchain skills, it will have to make investments in those areas.
By determining answers to the five questions above, enterprise leaders can gain a much clearer picture about what it will take to launch a blockchain initiative and how to measure its success.