Blockchain, a highly encrypted method of transmitting data over a network, first came to public consciousness with the rise of cryptocurrencies like Bitcoin and Ethereum, but major companies have been slow to adopt the technology.
Now, a new book from Northeast international business and strategy professor Ravi Sarathy, “Business Strategy for Blockchain: Lessons of Disruption from Fintech, Supply Chain, and Consumer Industries,” explores the whys behind this reluctance and offers solutions. to the problems that Blockchain still has. presents
Blockchain relies on a distributed network of computers to provide “a very high standard of encryption,” Sarathy says, in which transactions are collectively validated by member computers within the network.
When a transaction is certified, it is added to a “block”, each of which contains information about the transactions in the previous blocks. As these blocks accumulate, they form a chain, an “immutable” digital record or ledger of every transaction that has ever occurred along that blockchain, Sarathy says. “You can go back to 2009, when the first Bitcoin transaction occurred, and literally trace…every transaction in every Bitcoin ever created.”
Thanks to these collective validations, he says, blockchains are very secure. “The Bitcoin network itself has never been hacked. Wallets have been hacked, where people store Bitcoin, [and] exchanges have been hacked, which store Bitcoin on behalf of the client”, but the Bitcoin blockchain itself has remained secure.
According to Sarathy, these secure, distributed digital ledgers represent the next big disruptor for traditional business. Disruption is important in every kind of industry, Sarathy says, because it represents a force of “creative destruction.”
Describing what creative destruction looks like, Sarathy cites the rise of digital photography in the last 20 to 30 years. For one thing, digital photography almost killed off the big business of chemical film photography; on the other hand, the disruption of that industry allowed for the proliferation of photography into the hands of anyone with a smartphone and a whole new market for digital photography and new camera equipment.
So how could blockchain unseat the standard ways of doing business so far?
Essentially, says Sarathy, blockchain promises to simplify some of the most common daily activities of businesses, from validating the authenticity of complex exchanges to removing “middlemen” from web-based transactions.
Traditionally, intermediaries such as banks provide security between two parties exchanging one thing for another. After providing a product, a salesperson may ask, “How am I going to make sure I get paid? The bank represents that kind of counterparty trust.” Sarathy says, “but the bank charges a fee.”
With a blockchain solution, “a decentralized network, users can transact directly with each other without the need for an intermediary.”
Take supply chains as an example, a field that the COVID-19 pandemic has brought to the fore. Traditional supply chains relied on “bills of lading,” Sarathy notes, to provide “proof that goods were on the ship, but also title to those goods. and you can trade [bills of lading] between parties.”
But, Sarathy is quick to point out, these are all paper documents, subject to damage, loss, theft, forgery, and simple mistakes.
However, Blockchain technology provides an instant means of exchange, not only of data, but also of value itself.
The “Business Strategy for Blockchain” also addresses the factors that have made companies hesitant to adopt the technology. For one thing, because the blockchain relies on a large network of computers, the validation process can take time.
Also, because blockchain is so computationally intensive, it requires high levels of electrical power, a fact often raised by climate change activists. But Sarathy points out that Ethereum, a cryptocurrency similar to Bitcoin, has recently adopted new protocols that make the blockchain more energy efficient. Y faster.
The idea of disruption itself can seem negative, and one of the hurdles companies will have to overcome is organizational reluctance to change, says Sarathy. Large companies are hierarchical, and incorporating decentralized processes can seem like too much of a task.
But, says Sarathy, the promises of blockchain technology, such as “financial inclusion,” more secure voting technologies, and instant transfer of value, outweigh obstacles to its adoption.
Companies are “part of an ecosystem”. Sarahy says. “Good strategy sometimes requires companies to collaborate across ecosystems.”
MIT Press published “Business Strategy for Blockchain” on October 11. As part of the book launch, Sarathy will host a free public webinar and Q&A session, hosted by the MIT Sloan Management Review, on October 19. You can register for the event here, which will provide access to a recording of the webinar.
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