It’s hot – blockchain, that is. By now, almost everyone has heard of Bitcoin and many have heard the term for the underlying technology – blockchain. In fact, it is being touted as the “latest and greatest” method for recording and storing transactions, contracts, public and confidential data, and more. What started out as the best “fit” for fintech has expanded to be a “fit” for governments, education, travel, insurance, real estate, etc. – any business niche that needs permanent and secure (and transparent) records.
Blockchains can be public or private. Bitcoin, and most cryptocurrencies, use public blockchain, and the technology is pretty well standardized. But, more and more, individual businesses are developing their own private blockchain, with proprietary technology used only by and for themselves.
There is clearly a lot of excitement about this technology, and so there should be. It promises to bring a new level of trust between consumers/users and the businesses they frequent. It also cuts out costs of middlemen and their fees. And this is why businesses are looking to the technology as they develop their apps.
Is blockchain a Fit for Your App – Some Initial Questions
This, of course, is the question. And it has to be answered by looking at the benefits and challenges of both developing and implementing the technology. So, here are some initial questions you should ask yourself before you rush into adoption.
Why do you need blockchain technology?
Is your niche engaging in business activity that is subject to fraud? This is a common issue with travel and insurance sectors. Is there a need for security and confidentiality in transactions? Bitcoin sales require transparency in a similar way to the healthcare industry. Are there contracts involved in your business, and do you need an immutable record of them? Do you need to track purchases and transport of goods? Those involved in logistics and transportation niches could find blockchain valuable.
How Will You Develop the Technology?
As new as it is, skilled developers are not as prevalent as they should be, and the demand is high. And in the development process, there are all sorts of challenges. Building and testing distributed applications is hard and full of hurdles and roadblocks. In-house developers with expertise in traditional databases will not be useful here. For most businesses, any app using blockchain will probably be an outsourced project.
The cost – It’s Important
The average loss to business, due to fraud alone, is about 5%. For an airline, for example, this is a large amount. It makes sense, then, for companies that look at large annual losses to go the cost of developing blockchain technology, where identities, sales, etc. can be verified, recorded, and stored. For a small online retailer, not so much.
As the technology evolves, and as more skilled developers enter the marketplace, costs will obviously go down. It may make sense, then, to wait until that happens, depending on your current business needs.
Weighing the Benefits
There is no doubt that blockchain provides some key attractions:
Transparency: Because all transactions are entered into immutable blocks, with access permission provided to those involved (but not modification capabilities), anyone involved in a transaction, contract, etc. can see it in original and verified form.
Reduction in Costs, Disputes, and Errors: Because all transactions and data are stored in blocks, and time-stamped, there is a permanent record. Errors that occur with “paper-heavy” documents are eliminated; legal disputes will be reduced; and, as stated, earlier, middlemen and fees go away.
Fraud and Hacking Prevention: Again, as stated earlier, it is almost impossible for hackers to get into a block and alter documents or records. This provides a level of security that a lot of niches demand.
Weighing the Challenges
In addition to those listed above, businesses must also consider the following:
Compatibility: Public blockchains use standardized technology. As private blockchains continue to be developed, there will be lack of consistency, and varied technologies will not be able to “talk” with one another. Standardization for private blockchains will eventually come, but it may be a way out yet.
Government Acceptance: Currently, a few states recognize the validity of contracts within blockchains as evidentiary material for legal disputes. But the majority do not. This obviously poses problems for businesses engaged in interstate commerce. Ultimately, there may need to be some federal regulations that speak to the validity of transactions and contracts that involve parties from different states.
Security: Yes, this is a huge benefit of blockchain. But there is also a human factor involved. When access keys are given to involved parties, how they store those keys will be critical. One irresponsible individual can create a crisis.
Blockchain holds great promise, and the technology will probably prove to be a huge disruptor in every sector of public and private enterprises. The concepts of trust, transparency, immutability, security, reduced costs, and greater efficiency are too attractive to ignore. Is this technology beneficial for your app? Take time to consider the questions listed above to find out.