We have all seen or heard about the meteoric rise of Bitcoin. Followed by a significant crash. It seems barely a day goes by where you aren’t reading about cryptocurrency rises and falls, in one form or another. As a result, many people may consider Bitcoin and the plethora of other new cryptocurrencies to be ‘Monopoly’ money. Regardless of whether you believe this or think it may change the way we pay for things forever, one thing many people do not realise is that the technology that underpins cryptocurrencies is likely far more important and valuable to organisations than the currencies themselves.
I am talking about blockchain - but what is it?
What is Blockchain?
Put simply, the blockchain acts as a middleman, essentially replacing a bank or other central entity to make and record transactions between parties. When party A wants to create a transaction to party B, the transaction is validated by a larger group of participants in the trusted network. When the network agrees the transaction is valid, it is added to the blockchain which makes the transaction indisputable and completely transparent. Once the transaction has been validated, money or another asset can change hands between the parties.
Blockchain in the enterprise
Whilst existing on both public and consortium blockchains, some argue that smart contracts is where the true value of blockchain lies to organisations. A smart contract can be considered nothing more than a set of instructions or logic that performs an action when a condition is fulfilled. The potential application of smart contracts is vast and we will explore one of these applications later in this blog.
Many large companies are already considering the blockchain to see what it can offer in relation to improving business operations and security, however very few have turned this research into practice and put blockchain into production. It is widely accepted that blockchain will complement existing enterprise systems rather than making them redundant, which puts a key focus on the integration between these systems and the blockchain. Efficient integration is key to make sure that data sources are not siloed within an organisation's landscape, ensuring transactions that span multiple systems, whether they be cloud or on-premise, can be easily recorded on the blockchain. This will ensure that organisations can realise the benefits, but what are these? There are many industry specific benefits of blockchain however there are some that would span all organisations.
Benefits of Blockchain
In my opinion, the most important benefit of the blockchain is the permanent record of transactions that it stores, which can have applications across many processes within an organisation. Whilst personal data shouldn’t be stored on the public blockchain due to GDPR and similar regulations (there are workarounds for this however), storing other data on the blockchain allows organisations to easily access accurate history for auditing purposes as just one example. It further removes the risk of pulling data from several sources and instead consolidates this into one place; on the blockchain.
Having spent time working in an aerospace overhaul environment, it becomes clear that blockchain can also provide serious benefits to supply chain management (SCM). The ability to track materials within an organisation and through business processes allows increased transparency, which in turn could help to reduce the costs associated with mistakes in the supply chain (material loss, time slippage etc..). Another benefit of blockchain to SCM is the ability to enable automation, therefore increasing efficiency. When stock levels hit a predefined low, the logic in a smart contract will automatically generate and add a purchase order to the supplier’s network via the blockchain. Regardless of the sector an organisation lies in, smart contracts have the capability to provide huge benefit.
It is worth noting that currently consortium blockchain does have its imperfections. Like any new technology, it is still relatively immature and there are hurdles organisations will need to overcome if they are to reap the benefits from it. For example, for organisations to see the benefits in supply chain management, it is likely they would need to get suppliers and customers on board with using blockchain. There is also the question of transaction time. As I am sure you have read before, data validation with Bitcoin can take a few minutes, if not longer and whilst it wouldn’t be as bad on the consortium blockchain due to fewer transactions taking place, there are certain business processes where even a fraction of this latency wouldn’t be suitable.
Why Blockchain in the Enterprise?
So why is blockchain of interest to enterprises? Blockchain has use cases that are applicable to organisations no matter what sector they operate in and what they specialise in, allowing them to revolutionise the way they work. The benefits that can be realised, such as transparency, automation and its distributed nature allows all organisations from the largest multi-nationals all the way down to SMEs to get a quick return on investment. The important fact is that blockchain is not the answer to solutions in and of itself – it should be considered as part of a broader solution architecture and digital system. To this end, SAP have included blockchain into their digital innovation system, SAP Leonardo. We will be sharing more information on this hot topic in upcoming posts…
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