Blockchain beyond the hype: What is the strategic business value? - Anthony Norman

Speculation on the value of blockchain is rife, with Bitcoin—the first and most infamous application of blockchain—grabbing headlines for its rocketing price and volatility. That the focus of blockchain is wrapped up with Bitcoin is not surprising given that its market value surged from less than $20 billion to more than $200 billion over the course of 2017.1 Yet Bitcoin is only the first application of blockchain technology that has captured the attention of government and industry.

Blockchain was a priority topic at Davos; a World Economic Forum survey suggested that 10 percent of global GDP will be stored on blockchain by 2027.2 Multiple governments have published reports on the potential implications of blockchain, and the past two years alone have seen more than half a million new publications on and 3.7 million Google search results for blockchain.

Most tellingly, large investments in blockchain are being made. Venture-capital funding for blockchain start-ups consistently grew and were up to $1 billion in 2017.3 The blockchain-specific investment model of initial coin offerings (ICOs), the sale of cryptocurrency tokens in a new venture, has skyrocketed to $5 billion. Leading technology players are also heavily investing in blockchain: IBM has more than 1,000 staff and $200 million invested in the blockchain-powered Internet of Things (IoT).4

Despite the hype, blockchain is still an immature technology, with a market that is still nascent and a clear recipe for success that has not yet emerged. Unstructured experimentation of blockchain solutions without strategic evaluation of the value at stake or the feasibility of capturing it means that many companies will not see a return on their investments. With this in mind, how can companies determine if there is strategic value in blockchain that justifies major investments?

Our research seeks to answer this question by evaluating not only the strategic importance of blockchain to major industries but also who can capture what type of value through what type of approach. In-depth, industry-by-industry analysis combined with expert and company interviews revealed more than 90 discrete use cases of varying maturity for blockchain across major industries. 

We evaluated and stress tested the impact and feasibility of each of these use cases to understand better blockchain’s overall strategic value and how to capture it.

Our analysis suggests the following three key insights on the strategic value of blockchain:

  • Blockchain does not have to be a disintermediator to generate value, a fact that encourages permissioned commercial applications.
  • Blockchain’s short-term value will be predominantly in reducing cost before creating transformative business models.
  • Blockchain is still three to five years away from feasibility at scale, primarily because of the difficulty of resolving the “coopetition” paradox to establish common standards.

Companies should take the following structured approach in their blockchain strategies:

  1. Identify value by pragmatically and skeptically assessing impact and feasibility at a granular level and focusing on addressing true pain points with specific use cases within select industries.
  2. Capture value by tailoring strategic approaches to blockchain to their market position, with consideration of measures such as ability to shape the ecosystem, establish standards, and address regulatory barriers.

With the right strategic approach, companies can start extracting value in the short term. Dominant players who can establish their blockchains as the market solutions should make big bets now.

The nuts and bolts of blockchain

With all the hype around blockchain, it can be hard to nail down the facts (Exhibit 1). Blockchain is a distributed ledger, or database, shared across a public or private computing network. Each computer node in the network holds a copy of the ledger, so there is no single point of failure. Every piece of information is mathematically encrypted and added as a new “block” to the chain of historical records. Various consensus protocols are used to validate a new block with other participants before it can be added to the chain. This prevents fraud or double spending without requiring a central authority. The ledger can also be programmed with “smart contracts,” a set of conditions recorded on the blockchain, so that transactions automatically trigger when the conditions are met. For example, smart contracts could be used to automate insurance-claim payouts.

 

 

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