Looking To Integrate Blockchain Into Your Business? Heres How

Author

Laura Shin

May 18, 2016

Companies in financial services, healthcare, energy and other industries are sprinting to begin adopting blockchain — the technology behind Bitcoin that promises to improve efficiency in numerous processes, plus create new business opportunities. But many are doing so simply because of fear of missing out, without a clear understanding of how it can be useful and when it should be applied.

As executives scramble to educate themselves while also leading their companies into what many acknowledge will be a blockchain future, one place to start could be “The Business Blockchain: Promise, Practice, and the Application of the Next Internet Technology,” (Wiley, April 26, 2016) by William Mougayar, a venture capitalist at Virtual Capital Ventures and advisor to some of the more well-known blockchain organizations such as the Ethereum Foundation, which supports the development of a Bitcoin competitor, and peer-to-peer marketplace OpenBazaar.

Saying the blockchain “has polymorphic capabilities,” Mougayar sees many parallels to the Internet, which he witnessed transform society from its early days. At the beginning, he says, few understood the Internet, prompting him to write a book called “Opening Digital Markets” for a business audience. “That’s why I got so excited about the blockchain when I got exposed to it three years ago,” he says. “I was automatically taken by it and it gave me flashbacks to the early Internet days. I saw the potential in it and that the scope and magnitude of it were going to be similar to what the web gave us back in 1993-1994.” He answers a few questions about his book.

William Mougayar

Cover design: The Frontispiece

What is “The Business Blockchain” about?

The book is about helping business people think about the blockchain in a holistic manner. Everybody involved with the blockchain would only hone in on one example — the cryptocurrency aspect or the distributed ledger aspect — but there’s a lot more to it. Only if you understand it really well can you apply it to your particular situation.

The second part is to open the minds of businesspeople, enterprises and entrepreneurs, to say, now that I understand it, what can we do with the blockchain? What are the possibilities out there? On one hand, you have companies that want to use the blockchain to improve or lower the cost of a particular process. The other segment wants to innovate without any legacy systems or existing regulations tying them down. That’s the bigger promise — as a platform for innovation. This is where you see the startups. For most of them, it’s about new business models, although some of them are helping big companies implement the blockchain to improve their processes.

What is the blockchain?

You have to look at it in three ways: technical, business and legal. On the technical side, you could see it as a backend database that has a distributed ledger, like for accounting. On the business side, it’s an exchange network for transferring value between peers. It’s a mechanism that validates a transaction and can make it valid from a legal point of view as well. It doesn’t require someone in the middle to validate the transaction. So that’s where the legal and regulatory part comes in.

What is its significance for society?

We are still early in seeing how the blockchain could affect consumers and society. The biggest change will be when we have peer-to-peer interactions authenticated on the blockchain. For example, OpenBazaar is a decentralized peer-to-peer ecommerce application that runs on the Bitcoin blockchain. It allows anyone to buy or sell anything they’d like to anybody else in the whole world, without anyone in the middle imposing rules or fees on them like eBay or Etsy do. It creates openness, so the promise for society and the average consumer is that it will give us a new level of freedom, empowerment and reaching others without having intermediaries in the middle to censor, control, or tax by taking a fee or cut from us.

It’s going to allow us to control our identity. Every consumer will be able to be anonymous, public or private — whatever they want. They can own their identity and not have it owned by Facebook or Google.

Think of blockchains as a new layer on top of the Internet. To analogize it to the web, the world wide web was the first layer that became available on top of the Internet. First we had the Internet — before the web. The Internet was just the network connecting computers. The web came along a few years later and was about putting content on the Internet that was easy to visualize, publish on, move and share. Then we started to do more things like ecommerce, communication and being more social on it. But the blockchain arrives now and is a new layer that goes on top of the Internet. It doesn’t need the world wide web. If you download the OpenBazaar client, it doesn’t need the web. It sits right on the Internet. It’s on par with the web. But on the long-term, it has the potential to be of the same magnitude of the web as a space, as this new layer that’s going to be very important on top of the Internet.

What are all the industries that the blockchain threatens to disrupt?

The industry that is the most popular right now in terms of activity and thinking is financial services. One, because the very definition of the blockchain touches everything that a bank does in terms of money, movement of assets and contracts.

The second one is government services.  All of those services where you have to go somewhere like the county or the motor vehicle department and then stand somewhere to make a transaction could be done with the blockchain — land registry and anything to do with registration of titles and licenses and property ownership, motor vehicle registrations. Blockchain has an embedded trust component so you don’t need to show your face to prove who you are. With blockchain, why not offer everything online?

Another industry would be health care. One of the applications in health care would be the medical record. We could use multi-signatures [a technique in which transactions can occur only when a certain number of authorized people have signed off] to authorize others to access your entire or just certain parts of your medical record. Or maybe you could share your data as a patient in an aggregate manner, in a way in which it is still anonymous and private. The blockchain ensures the data is encrypted and only available to those who have a right to aggregate it. The blockchain could also verify that a particular procedure has taken place.

Other industries could include real estate — doing escrow or title insurance. When you buy a home, you have to pay $300-$400 to an escrow agent so they can clear the title for you, but really, all they do is go to the county office and make sure there’s no fraud on the title history. The blockchain can do that because it can store the history of who owned a particular house since it was first built, and that record is stored in a way that cannot be tampered with. With a blockchain, when you time stamp a particular document or service or ownership, that time stamp cannot be changed. That is the key difference between a blockchain and a database. In a database, you can erase a record and change the value and no one would know you did that because not all databases have an audit trail — you have no history of what was changed when it was changed. But that’s a basic, basic, basic element of a blockchain. So every time there is a new state, you don’t erase the previous state, you add a line below it like a ledger. You don’t erase the previous line and replace it. Then you have a good truthful, historical record of anything.

The last example is the energy sector. There’s a street in Brooklyn where neighbors are buying and selling energy from each other in micro transactions using the blockchain as a platform — a few cents here and a few cents there. The blockchain is a very efficient mechanism for conducting micro-transactions. If you were to do micro transactions on the order of a few cents here and there a hundred times a day on a credit card, it would not be cost-effective.

Where is the blockchain in development now?

We are still in the very early days of its expected maturity. The blockchain is a software platform and environment, a set of capabilities that software developers can utilize so they can write this new breed of applications that are decentralized and living on the blockchain from Day 1. By way of analogy, today, Java is one of the most popular programming languages for the web. If you want to write an application, you most likely write it in Java. The advent of Java in the ’90s was a key moment for the web because it allowed developers to write applications on the web and not worry about what kind of computers they were running on because Java was neutral — it worked on everything. Today, there’s more than 10 million Java developers. By comparison, developers that have done something on the blockchain today is only about 5,000, so we’re still in the very early stage of developers understanding how to program a blockchain.

Also, the platforms themselves — if you think of Ethereum and Bitcoin as platforms and the vertical solutions, even the consortium solutions like R3CEV and Digital Asset Holdings [private blockchains that have been built by specific companies] — they’re all in their early, early iterations of the product cycle. They are not mature and are still being developed, so that presents a challenge. There might be some challenges in using the technology to its fullest extent. But my prediction is that by 2018-2019, we’re going to start to see a lot more maturity and resiliency in these blockchain platforms, and it’s going to be easier to use them.

Today, you have to assemble a lot of pieces by hand if you want to develop a blockchain platform, just like how, in 1995 or 1996, if you wanted to publish a website, you had to work with html. You had a page editor where you would hand write the html page almost line by line. No one does that anymore. Now you can create a web page without touching a line of code with Squarespace, WordPress, Tumblr, etc. That’s where we need to go.

How will this affect the average consumer over the next few years and in the future?

Applications and services will use the blockchain in the background and we may not know, in the same way that, today, you may not know there’s a database in the background — you don’t know and you probably don’t care.

You’ll also start to see a number of services in the area of trust. In the same way we Google today to find information, we’ll perform the equivalent of Googling to verify records or identities or the authenticity of something or the rights or ownership of something or that work was done or that a title is valid and not fraudulent, to verify contracts. Anything that has a trust-based component — we’ll be able to check it on the blockchain. There will be identity certification services for everything. So for the average consumer, it will provide a new level of freedom.

I say the blockchain is about the three T’s — trust, truth and transparency. And that’s what the blockchain will enable us to get better visibility on — knowing what has happened, when something happened and how truthful it is.

What recommendations do you have for the workers whose industries and jobs will be disrupted, such as those in financial services or government?

If you’re an intermediary and you’re providing a service that provides a trust component, look at how the blockchain will perform that function you’re currently providing. It doesn’t mean you’ll be out of work. If you’re proactive, you can be the one offering that service. If you’re an escrow agent, maybe you can offer that blockchain service — instead of charging $300 and spending 2 hours, maybe you’ll charge $50 and spent zero time on it — so what you’ve lost in revenue, you’ve gained in time. You’ll be a new kind of intermediary rather than being completely wiped out.

I’m not saying all intermediaries will be replaced. Look at how the Internet threatened newspapers. Not all have gone away, but those that were more proactive were still able to survive and thrive.

But in the case of escrows, couldn’t you create a smart contract [a computer program that executes when certain conditions are met] that replaces them?

Yes, but not everybody will have the ability to interact directly with the smart contract, so maybe you need another layer. If you look at the pure Satoshi Nakamoto vision of peer-to-peer exchanging of money with the Bitcoin blockchain, he didn’t talk about Bitcoin exchanges. His paper was more about each individual owning their own wallet, and then interacting with the [Bitcoin software] to reach somebody else. I don’t even do that myself. I go to the exchange because it’s a lot easier. Yeah, they charge a little bit but they’re still a lot cheaper than a bank, so the exchanges became those new intermediaries. So the blockchain does enable peer-to-peer — anybody to connect with anybody else — but there is some complexity, which allows room for new intermediaries to come in and provide this new service, making it easier to use. The user experience of the exchanges is similar to that of a bank account — it gives you the ease of online banking but with the reach of the Bitcoin blockchain. If you download OpenBazaar, it looks like you have images, prices, so it looks like an interface you’d see on eBay but it’s different. It is connecting peer-to-peer, so that is a new intermediary. But to assume everyone can do it on their own — there’s still a technical element as a barrier. So the new intermediaries will simplify it for everybody.

What recommendations do you have for companies that either want to capitalize on the technology or are concerned about how it could affect their business?

Get educated and understand the blockchain and its many aspects. Don’t just see it as a currency or a ledger or transaction platform. Yes, it is all those things, but it is a lot more, so really try to wrap your heads around the different components and aspects. Then get aggressive on the innovation path — don’t just see it as a process improvement technology. It’s not just about doing things a little bit cheaper, faster and better. It is about being an enabler for new service models and technologies. The challenge is not just to slot the blockchain in a place where it can give you savings.

Try to make it affect not just the bottom line but the top line — new revenue, growth and services. Go after new customers and do things that were not done before. That’s the challenge for big companies because they don’t think out of the box very well. Most of them face the innovator’s dilemma where you cannot invent or create a new business model inside of your existing business model. A large company will always want to tie everything back to their existing model but when your business model is being threatened, you have to think outside of it. Otherwise, you’ll be tied down and won’t be able to innovate to the technology’s potential.

This article was written by Laura Shin from Forbes and was legally licensed through the NewsCred publisher network.

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