CEOs often ask me: “What is blockchain, and what impact will it have?” After tapping into Forrester’s research, here’s my answer.
Blockchain is a computer program that lets two parties exchange value in a trusted and verifiable way, even if they don’t know or trust each other. Depending on the type of blockchain, that value could be cryptocurrency, food, messages, information, digital art, or real art. The important fact is that the programming, through its design and use of encryption, can guarantee transactions without having to verify the dependability or trustworthiness of the sellers and buyers. I like this quick video I found on YouTube that explains the rudiments of how blockchains work.
- Blockchain appears to be sexy. Utopianists, tech-hipsters, libertarians, entrepreneurs, tech-artistes, preppers, and other players (criminal and not) have flocked to the tech. Why? Because they see it as, in no particular order: a way to destroy Facebook, Google, and the rest of “Big Tech”; a way to escape the control of “Big Banks,” “Big Insurance,” “Big Government,” “Big Whatever”; a way to get rich quick; or a way to reconstruct society into a freer and user-controlled form, using code. The favored narrative is that the Web was stolen by the Amazons of the world and can now be taken back by blockchain through the elimination of the middleman.
- Blockchain is not sexy. Two problems: 1) Someone must maintain the blockchain and 2) The tech is complex. The former factor means that you either have to concoct expensive schemes like mining to incent people to maintain the network or you must include a transaction fee structure in the blockchain. These costs are unpredictable and difficult to administer. The second factor, complexity, means that dreaded middlemen are all over blockchains — from the programmers that created them and can change them, to entry ramps like Coinbase and FTX, to third-party services like OpenSea, Infura, and Alchemy. And that’s not including the ecosystem rent-seekers like Gisele Bündchen who get paid to sponsor, entrepreneurs who are attempting to generate quick wealth off a technology that is supposed to be “for the people,” and the venture capitalists like Andreessen Horowitz and Peter Thiel who cheerlead to create a new funding segment.
- Blockchain is mundanely useful. While unpredictably expensive and often conflicted, blockchains have the potential to be good tech for a group of loosely affiliated buyers and sellers to engage in commerce without any one of them being able to cheat or control the others. Good example: a seafood supply chain composed of fishermen, dock workers, warehouse operators, shippers, truckers, and restaurants that all want to verify when the fish was caught, where the fish is, and whether the fish is fresh. A “fresh fish” blockchain could enable all parties to participate in the commerce of seafood in a simple, quickly deployable, verifiable way. Expect lots of blockchains to be built for these “everyone is equal” commerce applications. But don’t expect them to usher in a brave new world in which blockchain guillotines sever the heads of Netflix, Citibank, Sotheby’s, or the European Central Bank. Simply stated, blockchains will quietly improve targeted sectors of the economy, not overhaul society or existing business structures.
What It Means
- Apart from the crypto asset world (where most blockchains are deployed today — and the subject of my next post), a niche tech space will develop around the blockchain architecture. Don’t expect it to overwhelm the centralized database model — we project that only 16% of enterprise data systems will use blockchain by 2032.
- The legacy database companies will offer blockchain. We expect SAP, IBM, and Snowflake to follow Amazon Web Services, Google, Oracle, and Microsoft in providing distributed ledger systems that share many characteristics with blockchains. Again, a niche business.
- Federated business models will gain popularity. Blockchains will reduce friction in intercompany commerce applications — supplementing and potentially replacing old protocols like electronic data interchange (EDI) to enable faster-deployed and more trusted business networks. Blockchain-connected small companies will more successfully compete with dominant legacy networks in financial services, e-commerce, and supply chains. Again, these will be basic, rudimentary networks, useful in limited applications.
What CEOs Should Do
First of all, and perhaps most importantly of all, separate blockchain from crypto and calmly see through the hailstorm of hype and hyperbole that surrounds both. Yes, crypto is crashing, but that doesn’t mean that blockchain is crashing.
Secondly, find the mundane segments of your supply chain where better trust will pay off. Just as in the fresh fish example, there will be places where your firm could initiate, build, or participate in an intercompany blockchain. To find them, ask your team where you can use higher trust assurance to generate better outcomes for your customers — that’s the sweet spot. Here’s a very short Forrester report that gives a good 10-year look-ahead at blockchain in the enterprise (précis if you are not a client).