It is clear to many that we are in the midst of a technological revolution on the scale of the advent of the Internet. But the more complex questions are: what are all the unexpressed potentials of 4.0 innovations? And above all, how can a company exploit them so as not to be caught off guard? Let’s focus on one of these disruptive technologies: blockchain. Let’s try to understand what the key steps could be for a successful enterprise adoption of the shared and immutable ledger.
Why adopt blockchain in business?
This is the question that comes to mind when you hear about blockchain. You wonder what the real benefits of this technology are. Not only that, but one also tries to understand whether the effort involved in organizational change will be adequately rewarded. To answer these questions, we first need to assess the benefits and then analyze the main steps that need to be taken in order to implement blockchain in a company.
As always, let’s start with a quick definition of blockchain, the public distributed ledger: we can think of it as a giant database made up of blocks in which data is stored. Its immutable and shared nature makes blockchain suitable for recording transactions and sharing information transparently within a decentralized network. It is precisely the decentralized ecosystem of the technology that makes it so attractive.
For the purposes of the considerations we are about to make, understanding the technical workings is not an indispensable variable. However, if you are interested in learning more about how the blockchain works, I recommend that you read the simplified explanation of this phenomenon, which may seem unnecessarily complicated in some contexts.
Improves process efficiency with smart contracts
Let’s start with an assumption: as of today, the benefits of adopting blockchain in the enterprise are truly remarkable when combined with smart contracts. Why? Let’s go step by step. The enterprise is a set of horizontal and vertical processes. These processes are used to coordinate people or to execute actions or transactions, and they follow pre-defined formal logics. Take, for example, the execution of an order, an invoice, or a payment. Blockchain may be useful for sharing information, but it is not enough. We need to associate smart contracts with it to automatically execute all the steps of the transaction.
Smart contracts unite data and people interacting in a specific process: they are computer protocols that manage transactions in a pre-programmed and automated way. Like traditional contracts, they are made up of “clauses” or rules that must be fulfilled in order for the transaction to proceed (actions to be performed, conditions to be met, signatures to be applied). The logic is that of ‘even/if’: if this happens, proceed with that.
By combining the two technologies, smart contract and blockchain, we can automate an entire process, making it fully digital, but above all, valid and automatic. The result will be: less paperwork, no intermediary, and efficient and secure processes. Of course, companies that already make extensive use of automated processes will find it easier to implement these technologies.
To simplify, blockchain only allows the exchange of information between the nodes involved. Instead, smart contracts and tokens (NFT) provide a guarantee for economic transactions and exchanges of value.
Increases transparency and therefore trust
As mentioned above, the blockchain is a transparent shared digital ledger and its immutable nature makes it particularly suitable for economic transactions. But that’s not all: in fact, benefits can be achieved in any process where traceability is an important variable.
An example that combines the economic and the process side is the supply chain. In this context, transparency is a variable that greatly influences the trust of the stakeholders involved (customers, suppliers, consumers). By relying on a blockchain platform, we can follow all the steps that an asset takes on its way from the producer to the final distributor. In this way, we do not run the risk of illicit intrusion and can also certify the origin of individual materials.
In addition, everyone in the chain has access to the same information at all times. This is because the ‘knowledge’ is shared, i.e. the complete information is not entrusted to a central authority but is decentralized to all participants in the chain. This is why we use the term transparent.
Operates without intermediaries in a protected regime
Another relevant aspect of blockchain in the context of smart contracts is disintermediation. Not having to rely on external authorities means bypassing a cost that often weighs heavily on a company’s budget. By combining the two technologies, organizations will be able to execute and validate a transaction by delegating the entire activity to automated software.
The ability to manage a transaction without an intermediary, but with the same guarantees as an intermediated relationship, is an important alternative that is now possible thanks to blockchain and smart contracts. Moreover, if this shift is also accompanied by the creation of new business models, the results will be much more efficient and sustainable.
However, this does not mean that transaction data will be less protected. The information recorded on a blockchain will only be read by the members directly involved in the transaction, and any change to the chain will have to be approved by 50%+1 of the nodes (consensus) before it becomes effective.
To properly adopt blockchain in the enterprise, opportunities must be identified and translated into achievable goals. Click To Tweet
Prevents fraud or accidental manipulation
The aspects mentioned above – consensus, immutability, validation and disintermediation – offer numerous advantages, especially in supply chains, between the members involved in the process. Indeed, the transparency offered by blockchain blocks the risk of fraud or accidental tampering.
It is the distributed nature of blockchain that provides this advantage. In fact, let’s go back to the concept of consensus: if one of the members makes a variation in the process on the blockchain, it not only has to share it with the nodes of the chain but it will only be granted if it obtains the consent of the members involved. And this variation cannot be canceled in any way. Moreover, as a decentralized ecosystem, no one actor in the chain has total control over the network, but all participate equally and follow the same rules.
An example of fraud? Breaches in the supply chain of luxury goods. The profit margins in this sector are very high, as is the economic and reputational damage that fraud can cause to the original brands. Take, for example, a company that sells luxury watches. If the company chooses to use blockchain, it will be able to create a shared ledger between participants in the supply chain. The information stored will cover all the steps of the product, from production to sale to the end consumer. Each watch will then have a unique code recorded on the blockchain, making it possible to verify the authenticity of the product at every stage of the process. If we then add smart contracts to this, the entire economic transition can take place automatically.
Break-ins will be impossible because everything will be tracked. Brands that rely on such technologies will offer an extra guarantee to consumers who are willing to pay staggering amounts of money to buy high-quality, authentic products.
What are the steps for adopting blockchain in the enterprise?
Having highlighted the benefits of this technology, it is now time to understand the efforts that an organization will need to make to begin the process of adopting blockchain. Undoubtedly, the most delicate phase, and the one that will require the most time and care, is the planning phase. It will be essential to highlight all the steps that will be required to ensure that the technology is integrated into business processes in a secure and efficient manner.
The main steps that need to be taken to successfully implement blockchain in the business will be:
- Identify opportunities to turn into goals: we need to highlight areas where the technology could improve existing processes or create new business opportunities. At this stage, it’s worth benchmarking against similar use cases to understand the scope of the change we’re looking to make.
- Investigate the feasibility of implementing blockchain in the business: what are the costs, risks, and technical and security challenges we will face to achieve our goals? Carrying out these assessments upfront will also help to understand which professionals will need to be involved and what the approximate timeframe of such an operation will be.
- Choosing the blockchain platform to rely on: like any disruptive technology, blockchain has seen the emergence of many platforms, each with its own characteristics and benefits. When making a choice, we need to consider the functionality they offer, scalability and security. The macro difference to keep in mind is the division between public – consortium – and private (permissionless or permissioned) blockchains. Public blockchains, mainly used for cryptocurrencies, have a large number of developers and users, which makes them more secure, but also slower. Private or consortium blockchains, on the other hand, are more suitable for corporate contexts where the organization wants to use the properties of the blockchain without exposing its network to the outside world.
- Design, development and testing: we then come to the stage of defining the functional and technical requirements, communication protocols, consensus mechanisms, and any smart contracts we wish to implement. Careful and precise work in this phase will facilitate the development of the blockchain solution, i.e. the steps of creating the nodes, implementing the smart contracts, and configuring the consensus mechanisms. Finally, the solution should be tested in a controlled development environment to verify its functionality and, above all, its security, before moving on to the implementation phase.
- Implementation, monitoring and maintenance: Once the technical and technological aspects have been assessed, the next step is to implement the solution in the organization. This step involves not only major changes to existing business processes but also the need to adequately train the resources that will interface with the platform. In addition, the work of the technicians does not end with the implementation but continues with the monitoring of the nodes to verify that the solution is as secure and effective as in the simulations previously carried out in the development environment. If they find problems at this stage, they will need to respond with updates and fixes.
- Bring other partners into the network: Once the solution has been implemented, it is time to take full advantage of its benefits. To do this, it is useful to communicate this adoption to potential stakeholders who might join your network. By demonstrating business opportunities to potential partners, new markets can be explored where greater efficiency, transparency, and process security can make a difference. Finally, remember that the value of a blockchain solution grows as the interaction between participants increases.
Needless to say, blockchain and smart contracts are technologies whose potential can be fully exploited in companies that have already embarked on a major digitization process of the entire organization. On the way to digital transformation, knowledge of all technological tools and their interactions serves to drastically reduce the payback time of the investments made.
