Fifty-two percent of the Fortune 500 firms since 2000 are gone because they failed to see the next set of technologies and understand how they could capitalize on them, warns Ray Wang, Principal Analyst and Founder of Constellation Research Inc.
In the recent webinar, “Blockchain and Cryptocurrency Part 2: Maximize Potential, Minimize Risk,” Wang explains that blockchain will be at the heart of digital transformation for businesses in the next three to five years.
“This is an exponential technology that is changing the way we think about business models and changing the way we engage,” Wang said. “Blockchain is serving a unique role in the market that doesn’t exist yet.”
Despite the relative immaturity of this technology, a survey put out by Constellation Research, Inc. in late 2017 found that 52 percent of companies are considering or are already experimenting with blockchain. As the various consortia codify standards and use cases grow in number and maturity, Wang expects blockchain to become essential to the technology ecosystem of businesses.
As companies think about the basic requirements for blockchain to scale, Wang explained that it’s also important to consider when an implementation makes sense.
For blockchain to be successful, business must meet several requirements. For example, transactions with a variety of parties, and a high degree of information change and exchange are well suited for a blockchain approach.
Moreover, if there is a low trust factor between these parties, blockchain will go a long way. When trying to drive down the cost or length of a transaction, Wang said, trust is often the first barrier to get past.
“The heart of this is frictionless trust,” Wang said. With blockchain, “you know there is an authenticity to the individual on the other end. You know that they have already been validated or verified by their previous actions; there is a history of their behaviors.”
An interesting use case to consider is with charities and nonprofits. The lack of transparency in fund allocation with organizations is often an issue. With blockchains, Wang said, “We have the ability to understand how donations are being made and how funds are being distributed.”
Other popular blockchain use cases are being driven in the supply chain, where provenance of data is critical. Wang sites food distribution, drug integrity and clinic trial audits as valuable use cases. He also points to distributed storage as another benefit of blockchain that mitigates cost or bandwidth constraint.
“Not all the data needs to be stored in a central location on the blockchain; the content can happen all over the place,” Wang states. “This allows you to make sure that that data is secure, that that data is spread out and not vulnerable to one single point of failure.”
But while blockchain has a significant number of beneficial applications that cut across industries and business models, companies must be aware of the risks associated with the emerging technology.
A key risk to think about, according to Wang, is weak vendor security. As vendors built out platforms for users to choose from, companies must question the security of both credentials and code at full scale. Stress testing will be crucial to ensuring that these platforms can handle inevitable cyber-attacks.
Quoting the Willie Sutton Rule, Wang said “Why do people rob banks? ‘Cause that’s where the money is. Why do people hack blockchains? Because that’s going to be where the money and value exchange is going to be.”
In addition to concerns of security, Wang impressed that the current lack of standards and regulations will continue to be a challenge as these technologies evolve. Early adopters will have to consider how their business supports regulations that will emerge across industries and platforms.
Early adopters will also have to content with the fact that, “there aren’t a lot of people that are blockchain experts,” Wang said. A full-scale adoption of blockchain requires a team of people who fully understand the implications of what happens on the blockchain, not just a group of savvy coders and security experts.
Despite these risks however, Wang encourages companies to dive into blockchain and offers advice on how to approach a successful enterprise adoption.
Rather than build something from scratch, Wang advises companies to choose a platform that is already in production.
“Understand the platform, understand it’s limitations,” he advised.
Once a platform has been chosen, start experimenting to see how blockchain will impact your business model, Wang urged. Set up the right security, build a legal framework and model out your network ecosystem.
Watch the webinar recording to hear more of Wang’s take on the risks and benefits of blockchain, and advice on how to approach a successful adoption.