Blockchain has the potential to become one of the most disruptive technologies in recent times, primarily because of its ability to offer a decentralized and public but highly secure ledger for recording transactions. Immutability, or the inability to change data, is inherent to a blockchain network, which makes the technology a viable option for organizations looking to build a trusted environment for their business ecosystems. The decentralized model also enables smart contracts, which are digital agreements between multiple parties that require authentication and approval at every stage to ensure transparency and trustworthiness among permitted unknown parties.
While the future implications of blockchain are still being discovered, many organizations are proactively investing in the technology to ensure they are not left behind. Events are being organized around the world to allow developers, technology experts, consultants, analysts and academicians to come together and share their knowledge. ISG analysts attended one such recent event, the Blockchain Technology Conference in India, which was an opportunity to discuss the way forward for blockchain technology, including the challenges, potential pitfalls and use cases.
While blockchain is a popular theme in the technology domain, enterprises must carefully evaluate its applicability based on their requirements. Many blockchain applications that were showcased at the conference have the potential to be successful in the near future. Some of the key discussions and presentations focused on areas like challenges in blockchain implementation, use of blockchain in supply chain management and retail, technological convergence of blockchain with artificial intelligence (AI) and internet of things (IoT) technologies, among others. Blockchain can revolutionize the tracking of goods that move through a supply chain ecosystem as it can be implemented for verifying tracking systems.
Enterprise customers must be aware of certain prerequisites and potential pitfalls before they embark on the blockchain journey. It is important for them to asses if they are ready to make the leap and define a roadmap to achieve the ROI from blockchain investment. Here are a few things organizations should consider before investing heavily in blockchain.
- Immutability is a key feature of a blockchain network. However, if a use case requires a highly secure distributed ledger and an encrypted network connection, blockchain will not be cost-effective. If decentralization is a requirement for transactions under consideration, it is the number of participants involved that justifies the need for blockchain technology.
- A cost-benefit analysis of a blockchain implementation should drive decision-making. A blockchain network is a high latency network in which all the systems connected to the network are responsible for verifying and recording the transaction. This makes the entire process slower and companies should evaluate the time-criticality of the processes being moved to the blockchain network and how this will increase associated costs.
- Blockchain technology consumes a vast amount of compute power and electricity, which can significantly increase the power consumption of companies – and operational costs – even in the use-case-development stage. Organizations should perform a detailed assessment of the additional compute power they will need to ensure their blockchain network is running without interruption.
Blockchain technology is here to stay and adoption is projected to grow by leaps and bounds when implemented in the correct scenarios. Successful blockchain projects span industries from healthcare, real estate, energy, tourism and security to aerospace and supply chain. Some big names have already been associated with blockchain projects, including IBM, Wipro, Capgemini, Walmart, Maersk, Microsoft, Google and many more in specific industry verticals.
While a centralized ledger is advantageous for maintaining a transparent record, integrating it with different applications can be a challenge. Companies are working to overcome this by creating a hybrid IT integration framework that allows data to flow smoothly across layers of the integrated system without affecting the existing systems. Newer and/or smaller companies with fewer interoperability issues in their legacy systems may find it easier to adopt blockchain for this reason.
In addition to cost and potential technology challenges, organizations implementing blockchain must be aware of change management strategies, integration with legacy systems, security and regulations. Governing authorities are quickly regulating the use and implementation of blockchain solutions to safeguard the interests of the parties involved. Leaders should think critically about the business case and its impact on the overall business.
As more and more companies are developing use cases and investing in blockchain technology, it remains to be seen how many of these use cases will translate into real-world implementations. While there have been some successful implementations in India and around the world, they have been driven primarily by large organizations or governments, which have the resources to invest in experimentation and R&D. While blockchain technology may achieve large-scale success in the next 10 years, organizations need to understand that it is a significant investment that requires a thorough assessment. Each organization should assess its own business ecosystem and technology environment as well as those of the third parties involved before jumping on the blockchain bandwagon.
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