The enemy of speed and business growth is friction. Most business leaders understand this concept and recognize that a major source of friction is caused by settling transactions.
Take international payments, for example. There are multiple parties and operational procedures involved that currently slow down the overall payment process.
For instance, before funds reach its final destination, it must go through several banks to validate the trust between financial institutions. This process increases time and associated transaction costs while adding risk to the banks involved.
Now there’s a new technology that has the power to evaporate much of the friction that comes when business entities want to exchange assets. It’s called blockchain and there are five things every CEO should know about it.
What is blockchain?
Blockchain is all about trust, accountability, and transparency. It is an innovative distributed database technology that is streamlining business processes by improving transactional applications.
First implemented to power bitcoins, blockchain has grown to become a way of removing the friction that exists when using middle men. Presently, the technology is being looked at by corporations around the globe to settle transactions that involve everything from mortgages to shipping container contents to cross-border payments.
How does it work?
There are two significant concepts in blockchain: “business network” and “ledger.”
A business network is made up of market participants, like banks and securities firms. In most cases, these networks are permissioned where appropriate members can participate. Members of this network exchange assets with one another—either tangible like retailer merchandise, or intangible like intellectual property—through a ledger.
The ledger is accessible for all network members and the content is always in sync. Once assets are transferred, a record of that transfer is created and stored in a secure system that cannot be altered with, allowing every member in the network to see the same set of information. Members are then able to vote on whether or not each transaction is legitimate.
What does it give you now that you don’t already have? Historically, the biggest business risk was a competitor with new and disruptive goods or services. These days, new and non-traditional players with completely different business models will be the competition.
Blockchain enables companies to resolve transactions in mere seconds versus days. It even helps to minimize costs by eliminating intermediaries and radically reducing tampering, fraud and cybercrime. What’s more, the technology also enables companies to drastically increase transparency and efficiency that have never before been possible. Numerous members of a network can see the same transaction records and assets that cannot be changed or tampered with.
These capabilities give blockchain (and the companies that use it) a competitive edge.
Who’s using it?
According to a recent IBM study, 65% of banks plan to start using blockchain by the end of this year. In fact the data suggests that larger banks will be the trailblazers, leading the charge to embrace blockchain technology.
For instance, SecureKey Technologies is collaborating with some of the biggest banks in Canada to enable digital identity that makes it easier for customers to verify they are who they say they are.
But blockchain isn’t just for the banks. We predict the technology will be integrated across many industries and transform functions as varied as healthcare, car rentals, multi-media rights management, gaming, and government ID creation.
We’re even seeing progress in areas like food control and supply chain management. Take Walmart, which is teaming with Tsinghua University and IBM to improve the way food is tracked, transported and sold to consumers across China.
How do I get started?
The biggest challenge companies tend to encounter is getting started.
Encourage yourself and your organization’s leaders to recognize the advantages of being an early blockchain adopter—and the risks in letting your competitors go first.
Understand how the technology works and how it can be applied to solve specific business problems.
Ask yourself the following questions
How fast should I move? Early blockchain initiatives have the potential to influence future regulations. For companies who wish to transform their industry, the time to integrate blockchain is now.
How can my organization scale across business networks? Business growth can slow down if friction is not removed. Scaling across networks will help businesses minimize this friction.
How might I innovate with new revenue models? As noted in the IBM study, trailblazers expect blockchain will impact banking in areas like retail payments, consumer lending and reference data. It’s crucial that business leaders identify which model they plan to transform early on.
Blockchain is today’s new technology that is setting the business world on a new path. It has the potential to do for trusted transactions what the telephone did for real-time conversations and what the Internet did for information. Blockchain helps solve existing problems and creates new opportunities for things that did not exist before.
To be innovative in this age of digitizing data, a company must introduce something new that changes how things are currently done. It needs to make what we do simpler by removing sources of the friction that cause inefficiencies and impedes on saving cost and time.
It’s up to today’s business leaders to decide if they want to be the trailblazers that use blockchain to transform enterprises, ecosystems and economies of tomorrow.
Manav Gupta is chief technology officer of IBM Canada Cloud.