Integrating blockchain into your business: tips, pros and cons

11 August 2017

While the future of the digital currency Bitcoin is still fraught with skepticism, enthusiasm is steadily building for “blockchain,” the cryptographic technology underlying Bitcoin. Although still in its infancy, blockchain technology has people and companies worldwide clamoring to be among the first to identify how blockchain can help their cause.

Making blockchain real for business

Blockchain is an exciting new technology with huge potential to disrupt and improve numerous industries. Its potential benefits include reduced costs, elimination of data duplication, increased transaction speed and greater resilience. Given its potential breadth of impact, your approach to blockchain should encompass both your business and technology strategies.

Clearing, trading and replacing the intermediary. The settlement of financial assets and the clearing are traditional functions of the banking industry. In the U.S., Canada and Japan, there is a 3-day settlement cycle, and in the EU, Hong Kong and South Korea, this cycle takes two days. This one-day difference can bring many risks related to liquidity and credits. That is why in the U.S. the Federal Reserve pressed all stakeholders to act on increasing end-to-end payment speed.

Some argue that blockchain goes far beyond just moving the value, it also integrates several components of the trading-clearing-settlement value chain in an elegant and efficient way. Therefore, the sphere of clearing and settlement trades is one of the potential applications for blockchain.

However, there are critics who think that blockchain is always going to be more expensive than a central clearer because the processing job will be done by multiple agents, not by one. This will define such clearing service as not cheap.

Making blockchain real for business

Payment systems. Nowadays, all payments are checked and ensured by third party authorities, therefore experts in this industry predict that permissioned blockchains will take a significant part in the payments by 2020. The first bank that decided to introduce blockchain technology for international payments was Santander UK in June 2016.

Particularly in the U.S., non-depository financial services, such as blockchain payment companies have been traditionally regulated. However, there is a chance that the laws that establish licensing and compliance standards for money transmitters may be enhanced, if the amount of blockchain-based systems increases. Still there are several blockchain-based payment providers that may be subject to money services business (MSB) regulations issued by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). On the other hand, the EU has a uniform legal framework for regulating electronic money.

Operational risks in financial markets. Clearing intermediaries are included into a category of regulated entities called financial market infrastructure (FMI). The Federal Reserve states that FMIs include the system operator that settle or record payments, securities, derivatives or other financial transactions. Thus, FMIs are regulated. Due to the usage of blockchain technology, there is no need for a trusted intermediary, which could present operational risks. Consequently, the blockchain system will lead to the automation of trade clearing or of payment system.

Smart contracts. It is a contract between parties that is coded and uploaded to the blockchain. The smart contract does not rely on the third party authorities. All processes in dealing with such contracts are automatically controlled. The clauses of a contract are executed after all parties have accomplished their duties. This function removes all ambiguity regarding the execution of contract conditions concerning the existence of external dependencies.

Real estate industry. Blockchain can be applied to both public and private sectors of the real estate industry. All information concerning land registry records and public records of land ownership can be easily uploaded to blockchain. This opportunity will allow the relevant stakeholders and agencies to have an access to the ownership data. This considerably decreases the amount of disputes and the need in the third party, consequently saving time and cost for the consumers.

Health care industry. There are various applications of blockchain technology for the health care industry, for example, drug delivery pipeline for the end customer. Throughout this process, drug packages are authenticated, time stamped and placed on blockchain at each delivery point. Therefore, the drug packages can be tracked. Blockchain makes the distribution of medicines transparent and secure because it can prevent the drugs from thefts and reduce the possibility of price manipulation and delivery of expired drugs.

Health care industry

Why is blockchain relevant for your business?

Blockchain technology has many features and characteristics that can be useful in today industries. Moreover, it can bring benefits for all parties, especially for customers. Such benefits and key factors can be summed in the following list:

Compliance and transparency. These are the most important advantages of blockchain. They can help to eliminate the organizational silos within existing parts of the supply chain and the leadership to understand how to make the supply chain more efficient on different levels.

Tracking and tracing. Due to these features, companies can gain and provide better information concerning product lifecycle, including all types of detailed information.

Reduction of errors in auditing and payment processing. Owing to this blockchain characteristic, all payments or payables can be uploaded in the digital ledger, where it will be easily checked and verified.

Fraud security. Blockchain is “unhackable”. It decreases the probability of any kind of fraud. Furthermore, it does not work on patches, which makes blockchain the securest in the market of cybersecurity initiatives.

Increase of customers’ trust. Blockchain allows customers to find all necessary information about the origins of the products, way of transportation and packaging, which consequently increases their trust to the company.

Real-time feedback from consumers. Customers can respond to products they buy or receive in a real time. It can help various parties across the supply chain to analyze their work and to avoid several errors.

Better scalability. Blockchain has the ability to help the organizations to develop their business by analyzing the market and responding to possible surges there. Moreover, blockchain does not depend on politics so it inspires companies to expand.

Disadvantages of blockchain

It is worth noting that there are several pitfalls in integrating blockchain into your business, which you should think about in advance.

Integration challenges. In theory, the blockchain can work, but supply chains are very hard to change and adapt. Companies spend years putting supply chains in place and refining them. It is not very easy to insert a new technology inside established supply chain systems, because the integration challenges should not be underestimated.

Blockchain literacy. Currently, there are not enough specialists with particular experience in the cryptocurrency space and with broader knowledge of other types of crypto assets. Therefore, a company should know more about the blockchain literacy before going into the network.

Adoption of blockchain faces many challenges. The most significant of them, arguably, is the ability of blockchain to displace people from work, but all of us should understand that blockchain is an innovative technology that improves the efficiency in different sectors and enhances globalization in general. Due to this, a large number of financial and non-financial companies invest money in the creation of blockchain-based applications and start to implement them in their business in order to enhance several metrics and performance in general.

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