Blockchain FAQ for Business | Grant Thornton

Many companies are considering whether blockchain technology can help them achieve better financial returns, efficiency or security. Here are short answers to some of the most common questions about blockchain technology:

1. What is a blockchain?
   At its root, blockchain technology represents a transaction system that allows the tracking and/or transfer of assets, the recording of payments, and/or the memorialization of interactions between participants that require secure, reliable, and transparent record-keeping in a way not achievable via traditional database and/or application development architectures. Think of blockchain technology as an operating system that allows users to independently validate the authenticity of the stored information. Cryptocurrencies and smart contracts are examples of applications that run on the blockchain “operating system”.
2. How does a blockchain work?
   Each blockchain supports a distributed database that acts as a digital ledger of transactions between accounts (or “addresses”). It is “distributed” because identical copies of this transaction database are stored on computers forming a network. These computers are called “nodes”, and each one contains an equally authoritative record of transactions. When a “block” of transactions is validated by the governing mechanism of that blockchain, all nodes in the network recognize the validated block and add it to the previous blocks of transactions – forming a chain of blocks, or a blockchain.
3. How do blockchains interact with cryptocurrencies like Bitcoin?
   Bitcoin and other cryptocurrencies are applications that run on a blockchain operating system. Technically, a cryptocurrency is a type of digital asset – a non-physical property that is created and/or recorded on a blockchain. Blockchain technology can serve many purposes beyond cryptocurrencies, such as identifying, verifying, or digitizing artwork and other property.
4. How do I know if my organization should use blockchain technology?
   Organizations should only use blockchain technology in cases where traditional database technologies are not suitable for the purpose. The litmus test for blockchain adoption boils down to two central themes: trust and resilience. If the problem you are trying to solve does not depend on the trust of network participants or the need for a highly resilient network of computers, you are probably using blockchain inappropriately. So the litmus test should be:
   Can this problem be solved with a traditional database technology?

   Are speed and privacy greater priorities than participants’ trust and resilience? Consider blockchain technology when traditional transaction models do not provide sufficient trust (to participating parties) or resilience (to the underlying transaction systems).

5. What are some use cases for blockchain?
   Blockchain can be useful when the network participants must trust that transactions are recorded correctly, securely and immutably. Some common use cases for blockchain technology include contracts, regulatory compliance, controlled information sharing among competitors, credentialing, and a variety of privacy-related applications. Other new use cases center on asset management, supply chain management, digital identity management, asset tokenization and transaction (collateral) clearing.

   Blockchain is well suited for transactions that rely on intermediaries, because it will reduce the “friction” of additional costs, delays, paperwork and the need to trust participants who are not a party to the transaction.

6. Where should my organization start with blockchain technology?
   An organization should weigh a number of considerations when planning its approach to blockchain technology.

   First, the organization should realistically assess its long-term interest in the technology and its potential benefits. If an organization cannot pass the litmus test in question 4, it should not adopt blockchain technology. If an organization can pass the litmus test but cannot afford to implement blockchain internally, it should consider partnering with platform providers or vendors that have already developed solutions for related industries, products, services or business models. If blockchain development is compatible with the organization’s long-term technology and infrastructure strategy, the organization can develop custom applications to support a wide variety of functions—such as intercompany transfers, contract management, supply chain management, or human resource decisioning.

For a more comprehensive introduction to these and other topics, see Blockchain 101 for Business.