Craig Macy
Much has been written and talked about lately regarding the near-infinite potential of blockchain and smart contract technology. And a good portion of it may very well turn out to be true.
But the promise of a better tomorrow doesn’t provide much practical direction to help today’s executive understand the value and application of blockchain to their business, or to align their company to take advantage of this potential as it materializes.
For such a young technology, the projected investment by companies in blockchain infrastructure is impressive. According to a recent IDC report, CAGR for blockchain spending for the six years leading up to 2021 is estimated to be 81.2 percent. While 2017 saw less than a $1 billion spend on blockchain solutions, the spend for 2018 is expected to exceed $2.1 billion, with that number approaching $10 billion in 2021. Maybe you’re starting to think that your company should start investing in this technology. Let’s see what that means.
For most of us, blockchain is inextricably connected with cryptocurrencies like Bitcoin. While there is no denying the impact this alternative currency has had, the real value and disruptive potential for business may lie far outside this initial use case.
By reducing the transactional drag, time inefficiencies, and lack of transparency inherent in traditional business interactions, and by monetizing latent value in business assets, blockchain and smart contracts have the potential to directly impact both the top and bottom line. In a recent report, Accenture estimated that banking alone could see infrastructure cost savings between $8 billion and $12 billion annually by 2025. And that is just for banking’s bottom line.
This becomes even more interesting for supply chain challenges faced by almost every company. While discussions of the technical aspects of blockchain infrastructure are everywhere, a more conceptually accessible view for many of us would be to see blockchain simply as a trusted mechanism for collaboratively transferring value, and smart contracts as the autonomous transfer agents. You will soon see business solutions across verticals addressing all kinds of inefficiencies and challenges.
Areas such as supply chain sourcing and delivery validation, chain-of-custody tracking, food safety verification, quality assurance, theft, counterfeiting, and fraud detection and prevention, and product state tracking across the supply chain (Provenance and SkuChain are taking interesting approaches to this last challenge already).
But think even more broadly. Think about top line revenue possibilities. Blockchain provides a very efficient mechanism for conducting machine-to-machine trusted micro transactions, which is something fundamental to autonomously unlocking the capacity inherent in business assets such as equipment.
Maybe your company has assets with latent value, such as excess energy, bandwidth, storage, or even more tangible service capacity that if friction were removed, would be purchased and transferred for value by other market participants. These are the types of solutions that are starting to emerge. And with products like Filament’s Blocklet Chip, the technical barrier to entry for any company is all but removed.
One challenge for those developing blockchain solutions as well as the adopters is that they must work with existing enterprise systems. Supply chain improvement built on blockchain base layer infrastructure cannot require the abandonment or replacement of a company’s enterprise systems. This means that many of the early solution offerings will likely come from established companies working in concert with these system providers.
For example, EY’s Ops Chain applications and services work with SAP’s blockchain as a service (BaaS) to allow companies to leverage their existing business and procurement rules and integrate with existing enterprise systems. Simplifying supply chain management, integrating digital contracts, sharing inventory and logistics information, optimizing pricing, and expediting invoicing and payment become the focus. This can bring with it improved forecast accuracy and fulfillment performance while reducing working capital requirements.
The reality of the moment is that it is very early in the development of solutions and uses cases that take advantage of blockchain and smart contracts. To be useful, components, modules, tools, and solutions have to be developed and made available to companies in a business-ready state. At the moment, much of the work has to be done by hand, like in the early days of the Internet. But that will change.
What can you do today? Right now, you should be taking the foundational steps to put yourself and your company in position to understand and embrace the truly disruptive and competitive use cases. Companies that are early adopters of these innovative approaches will likely see a competitive advantage, and in some instances, an advantage that may create a dominant market position.
Rather than think about adopting blockchain infrastructure for its own sake, instead take a top down approach, focusing on innovative solutions as they emerge, and evaluating the solutions themselves just like your business has always done.
Craig Macy, Of Counsel at Fennemore Craig, has over 20 years of experience serving in a variety of technical, managerial, advisory and principal roles throughout the high technology sector. To discuss blockchain, smart contracts or other tech-specific litigation, patent and trademark matters, email him directly at cmacy@fclaw.com.
