8 Things to Consider Before Hopping on the Blockchain Train

While blockchain holds great promise for some applications, companies have to understand the various challenges.

Guest Commentary, Guest Commentary

March 26, 2018

8 Min Read

Blockchain is likened to the Internet in terms of its ability to boost a business’s reach and reduce expenses. This has positive connotations, but as a new technology, it’s often misunderstood. Just as companies with no use for the online world sought to establish a website during the dot com boom, a similar pattern is emerging of businesses piling into blockchain for all the wrong reasons.

Whether they develop their own custom blockchains or use smart contracts to piggyback off platforms like Ethereum or Qtum, there’s no question that the decentralized ledger is often mistakenly considered a free ticket to triumph.

However, adopting or integrating your existing business flows with blockchain is easier said than done. Aside from the expenses involved, a business owner must also consider the benefits and detriments that blockchain imposes. The consequences for not doing so are the risk of a bad fit that could capsize a business that suddenly finds itself in unfamiliar waters. Consider the following ideas when determining if your latest blockchain business idea has legs.

Does your idea require blockchain?

The ideas that are likeliest to adopt blockchain and succeed are those that could not prevail without it. Companies with perfectly healthy and efficient business flows may complicate their operations by integrating blockchain unnecessarily. Take, for instance, Long Island Iced Tea’s decision to change its name to Long Blockchain. Since announcing plans to diversify into more blockchain-related activities, including mining, the company has since backtracked and found itself receiving a delisting notice from Nasdaq

On the other hand, a major retailer like Walmart, which has already implemented a blockchain solution for its supply chain, can greatly benefit. The company uses the technology to improve trust and efficiency in its transportation of meat products and it has reduced the time it takes to react to supply chain problems and detect issues from days to seconds.

Blockchain integration requires that a business owner take a long, in-depth look at what blockchain can do for the business. While some business models might benefit from greater decentralization, specifically those who are at the mercy of intermediaries, others may not need blockchain at all.

Which of blockchain’s technical capabilities suit you best?

For the uninitiated, there are several popular blockchains that a company can use to build their own processes with. Smart contract capability is granted by those like Ethereum, which let individuals or companies automate their ideas. Business flows that are transactional in nature use cryptocurrency to denominate emissions of data to and from users in a network, and can be written to automatically execute, based on preset conditions, like a borrower making a crypto-loan payment.

Qtum is gaining momentum for its superior reliability over Ethereum, which suffers from some technical issues. Built on the same blockchain as the original (bitcoin’s), but including smart contract utility, Qtum is now a hot commodity for ambitious businesses and startups like Starbucks.

Others are looking at blockchain’s ability to encourage participation and incentivize engagement. KIK, the massive mobile chat application, announced the release of their KIN token, which can be earned by users for completing a variety of activities (which range from consuming media to creating content and tools). These tokens can be exchanged for other rewards and the company hopes to enhance its ecosystem by creating these value-added systems.

What are blockchain’s shortcomings?

Blockchain isn’t a magic bullet, and even when it’s all set up and running, your work is barely half done. The technology is decentralized between participating nodes and is also dependent on a high volume of users. Without a robust community of stakeholders on each side of the transactional business flow, an idea simply won’t work.

For example, Basic Attention Token (BAT) aims to revolutionize the digital advertising market by helping users monetize their data collected by the Brave browser. However, this model will prove successful only if the idea is adopted by many users. Without users that replace their existing web browsers with the Brave browser to participate in the ecosystem, this bright idea may fail to gain traction and attract attention.

Will you ICO?

There’s often a financial aspect that confuses some great ideas with how they’ll be monetized. Businesses that need capital to properly develop their blockchain solution often turn to ICOs, or initial coin offerings, to make it happen. With few regulations, countless projects are setting up a smart contract that offers contributors tokens in exchange for their BTC or ETH. Though it’s an easy way to get some liquid funding, launching an ICO comes with extra responsibilities, other than making a solid service or platform.

You’ll also be beholden to a large community of speculators who have only one thing in mind: the price of the token. This complicates matters and may distract from the original goal. Companies like Telegram, though already fully funded and successful, have chosen to ICO even in the post-IPO phase, so that they can fund blockchain-specific projects without dipping into their coffers or raising money the traditional way.


How will you encourage participants?

Smart contracts, which are a central part of most blockchain solutions, allow savvy programmers to create a tokenized ecosystem whereby all users benefit from participating. If the platform is healthy, and both sides of the transactional paradigm are as well, you have the right recipe. However, this takes a fair amount of creativity.

Some corporations are taking the route of opening their services to encourage a larger ecosystem for developers. Microsoft, for instance, created a virtual sandbox through its Azure service for developers to build and test decentralized applications. The company hopes their simplified platform will aid in greater adoption of its blockchain by business.

Businesses are still figuring out how to create mutually beneficial dynamics with their blockchains, but a good example can be found in projects like SiaCoin. Here, users lend their unused hard drive space to the network and are paid for it in cryptocurrency. With these coins, essentially obtained for nothing, they can get more private storage space on the decentralized cloud.

How will cryptocurrency volatility affect your platform?

If a platform is dependent on the value of its token to operate in some way, even if it’s simply a magnet for users, cryptocurrency market volatility will severely hamper operations. A payments blockchain that doesn’t incorporate instant currency exchange functionality, for example, wouldn’t properly protect users from swift upwards or downward swings in value, meaning that someone lost money on the transaction unnecessarily. 

Furthermore, if the costs for processing are excessive, gaining widespread adoption may be challenging. Platforms like Steam and Stripe have stopped accepting bitcoin after highlighting the challenging volatility and processing environment.

How will regulations affect your platform?

Regulatory entities have not taken a unified approach to blockchain or cryptocurrencies, so there’s always the chance that some part of the business will need emergency changes to stay in line with the law. It’s crucial to pay attention to the existing regulations within the arena that a blockchain business operates.

Furthermore, enforcement agencies are taking action to ensure these activities conform with securities laws, with the US Securities and Exchange Commission (SEC) recently announcing numerous probes into companies and investors alike. Note, ideas that aren’t overtly financial in nature are largely immune from these regulations.

Companies looking to integrate blockchain to further their own products or processes (rather than ICO) can disregard these warnings. An example is Volkswagen, which recently partnered with IoT blockchain IOTA to employ the latter’s technology in improving autonomous driving functionality. The company will test the IOTA chain and the projects feasibility, but it is a promising start for the industry.

Is the risk worth the reward?

Integrating blockchain with existing operations, or building them from scratch, is an enormous undertaking that shouldn’t be underestimated. Blockchain can create more equitable business models, but even setting up a smart contract isn’t cheap. If the potential reward isn’t greater than the risk of hiring developers and distracting existing employees (and owners) from the core business, restraint is advised.

Perhaps no enterprise company has entered the blockchain market as wholeheartedly as IBM, a company that at the start of the decade was floundering in relative irrelevancy. However, the company has embraced the emergent sector and has produced a new blockchain-as-a-service tool that allows for direct on-chain network development. With that move, the company could be poised to be at the vanguard of the blockchain sector for enterprise-level development.

Similarly, Oracle has also created their own blockchain-based cloud service for enterprises, which lets companies better manage their IT systems across geographic locations and find new revenue opportunities with easier access.

Taking a chance with blockchain

Companies that have the potential to benefit from blockchain can insulate themselves from competition, and become the new standard in their industries, but only if they can organize its smooth adoption. They must take an honest look at the reasons for their blockchain ambitions because combining unsuitable business models with the technology carries irrefutable risks. Regardless, the reward for getting the recipe right are immense, leading more and more companies to take the plunge.

Ralph Tkatchuk is a data security consultant and an IT guy with 15 years of field experience working with clients of various sizes and in different verticals. He is all about helping companies and individuals safeguard their data against malicious online abuse and fraud. His current specialty is in ecommerce data protection and prevention, with a keen interest in AI and machine learning. He runs TK Data Sec, a DataSec and IT consultancy.

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Guest Commentary

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