Blockchain solutions have been gaining popularity among businesses over the last few years as a way of expanding their revenues and optimizing their processes, but is it really worth it? When should businesses use blockchain, and when should they stray away from it?
For the past decade, blockchain has been implemented in many industries worldwide. A lot of companies now use blockchain technology to track and trace their products and funds. Just earlier in December, the Irish Red Cross teamed up with AID:Tech, a Dublin crypto startup, to create a peer-to-peer donation platform called “Trace Donate.” The app allows the Irish Red Cross and their monetary contributors to see the donations and follow where their monetary donation is going.
The Italian government is also actively implementing blockchain technology. In December, the country even announced 30 blockchain experts to join the government as consultants on the use of blockchain on a state level.
A lot of corporations worldwide have also turned to blockchain. For instance, Walmart, the largest retailer in the world, is using blockchain for their food safety, tracking the produce through IBM’s blockchain platform all the way from suppliers to consumers.
However, just because blockchain is effective, it doesn’t mean it’s for every business and organization, and there are times when blockchain isn’t necessary. Let’s take a look at some of these examples.
Scalability Trilemma And Business Priorities
When it comes to blockchain, there are three main issues, better known as scalability trilemma: security, speed, and decentralization.
Blockchain needs security because otherwise it will be susceptible to hacker attacks just like any other conventional technologies. Decentralization is also important because it makes the system stronger and immune to censorship, by not allowing it to become controlled by any single owner.
Without decentralization, transactions can be made without the funds being there to back it up, and transactions can be canceled or blocked without justification, which would bring us right back to the issues most merchants are currently facing — chargebacks.
Most blockchain technologies favor security and decentralization but thus sacrifice speed. According to AngelList co-founder, Naval Ravikant, blockchain can be “incredibly inefficient.”
“It’s worth paying the cost when you need the decentralization, but it’s not when you don’t,”
Costs. In 2019, Blockchain Is Still Expensive
Speaking of costs, blockchain is not a technology you can implement or run on a budget in 2019. If a small business was to use blockchain, the running of blockchain and the associated fees could cost more than the profit generated from it. Some of these costs can include:
- Development of a custom solution (most enterprise blockchains have to be developed from scratch)
- Customization to tailor the software, if it’s not a 100% custom-made solution
- Expert consultants’ fees during development or customization of any enterprise-grade blockchain
At the time of writing this article, ready-made or BAAS (blockchain-as-a-service) solution which could be affordable and accessible for small business are extremely rare, so we’re cutting this option out of our equation.
Plus, don’t forget about energy consumption! In order to run a successful enterprise blockchain, the company has to have enough servers with the right configuration required for the current tasks, additionally to their support and maintenance. All of this makes bills, including electricity ones, skyrocket, and energy usage could be an issue even for large-scale companies which use enterprise blockchains.
Complexity. Embedding Blockchain Can Be Rocket Science
In 2019 blockchain for business means a technology for enterprises or other larger entities (such as governments or global associations). All of them already have the complex structure and operations.
As blockchain is tied to many processes, tools, platforms, and sometimes even hardware inside and outside the company, any changes to these entities become even more complex because they have to be aligned with the blockchain part in addition to the existing general challenges of the enterprise software.
Thus, balancing the possible blockchain benefits for a certain business, it’s important to count in all the research and development phases. For some of the projects, they can outweigh the development itself, thus impacting the ratio of profit and expenditures of the whole venture.
And last but not least: not only money, but the human resources can be an issue, too. If you don’t have consultants who know both blockchain and your business, you’d probably like to hire them from your blockchain solutions provider or from a third-party company, which only adds to the complexity of the implementation.
Do You Actually Need Blockchain?
Blockchain isn’t untouchable; it’s costly and can’t solve everything. Using blockchain for the sake of using blockchain isn’t a good idea. The age-old saying, “if it isn’t broken, don’t fix it” has lasted so long because of its validity. Many companies are already using technology that helps excel their business and revenues and don’t need to use blockchain for that.
It doesn’t, though, mean that companies shouldn’t investigate the possible impact of the new technologies on their business.
Without denying the benefits of the technology, company representatives should carefully weigh in on the advantages and disadvantages that blockchain would bring in every particular situation. Below are just a couple of questions to ask at the very start of the research process:
- Will the costs of implementing and running blockchain outweigh the potential revenue this solution would bring?
- Are your competitors or similar companies using blockchain or planning to?
- Does the decentralized model of a blockchain fit your business?
- Is there an issue for a blockchain to solve in your business?
- Are there any other technologies, solutions, or methods which might help you solve your company’s issues?
All experts are united in one opinion: companies shouldn’t implement blockchain just for the sake of it. Do your thorough research, consult blockchain experts, BA and R&D specialists, and make a well thought-out decision. When implemented correctly and for the right purpose, blockchain can transform and revolutionize indeed. When implemented without need, it may easily destroy an existing and already working process, leading to a loss of invested money and profits.