Blockchain for CEOs

CEOs often ask me, “What is blockchain, and what impact will it have?” After using Forrester’s research, here is my answer.

Definition

Blockchain is a computer program that allows two parties to exchange values ​​in a reliable and verifiable way, even if they do not know or trust each other. Depending on the type of blockchain, this value can be cryptocurrency, food, messages, information, digital art or real art. The important fact is that programming, through its design and use of encryption, can guarantee transactions without having to verify the reliability or trustworthiness of sellers and buyers. I like this quick video I found on YouTube that explains the rudiments of how blockchains work.

Three realities

1. Blockchain looks sexy. Utopians, tech hipsters, libertarians, entrepreneurs, tech artists, preppers and other actors (criminals and not) have flocked to the technology. Why? Because they see it as, in no particular order: a way to destroy Facebook, Google and the rest of “Big Tech”; a way to escape the control of “big banks”, “big insurers”, “big governments”, “big whatever”; a way to get rich quick; or a way of reconstructing society into a freer and more user-driven form, using code. The preferred story is that the network was stolen by the world’s amazons and can now be taken back with a blockchain through the elimination of the middleman.
2. Blockchain is not sexy. Two problems: 1) Someone has to maintain the blockchain and 2) The technology is complex. The former factor means that you either have to create expensive schemes such as mining to motivate people to maintain the network, or you have to include a transaction fee structure in the blockchain. These costs are unpredictable and difficult to manage. The second factor, complexity, means that dreaded intermediaries are across blockchains – from the programmers who created them and can change them, to entry ramps like Coinbase and FTX, to third-party services like OpenSea, Infura and Alchemy. And that does not include ecosystem interest rate seekers like Gisele Bündchen who get paid to sponsor, entrepreneurs who try to generate quick wealth from a technology that is meant to be “for the people”, and venture capitalists like Andreessen Horowitz and Peter Thiel who cheer to create a new financing segment.
3. Blockchain is useful everyday. Although blockchains are unpredictably expensive and often in conflict, they have the potential to be good technology for a group of loosely connected buyers and sellers to engage in trading without any of them being able to cheat or control the others. A good example: a supply chain for seafood consisting of fishermen, dock workers, warehouse operators, shippers, truck drivers and restaurants who all want to verify when the fish was caught, where the fish is and whether the fish is fresh. A blockchain with “fresh fish” can make it possible for all parties to participate in trade in seafood in a simple, quickly deployable and verifiable way. Expect many blockchains to be built for these “all are equal” trading applications. But do not expect them to usher in a brave new world where blockchain guillotines will cut off the heads of Netflix, Citibank, Sotheby’s or the European Central Bank. Simply put, blockchains will quietly improve targeted sectors of the economy, not overtake society or existing business structures.

What it means

1. Apart from the crypto asset world (where most blockchains are deployed today – and the topic of my next post), a niche technology area will be developed around blockchain architecture. Do not expect it to overwhelm the centralized database model – we estimate that only 16% of enterprise data systems will use blockchain by 2032.
2. The older database companies will offer blockchain. We expect SAP, IBM and Snowflake to follow Amazon Web Services, Google, Oracle and Microsoft in offering distributed general ledger systems that share many features with blockchains. Again, a niche business.
3. United business models will gain popularity. Blockchains will reduce friction in intercompany commerce applications – complementing and potentially replacing old protocols such as electronic data interchange (EDI) to enable faster distributed and more reliable business networks. Blockchain-connected small businesses will more successfully compete with dominant older networks in financial services, e-commerce and supply chains. Again, this will be basic, rudimentary networks, useful in limited applications.

What CEOs should do

First of all, and perhaps most importantly, separate the blockchain from the crypto and look calmly through the hailstorm of hype and exaggeration that surrounds both. Yes, crypto crashes, but that does not mean blockchain crashes.

Second, find the secular segments of your supply chain where better trust will pay off. Just like in the example of fresh fish, there will be places where your company can start, build or participate in an intercompany blockchain. To find them, ask your team where you can use higher confidence to generate better results for your customers – this is the best place. Here is a very short Forrester report that gives a good 10-year look ahead at the blockchain in the company (just in case you are not a customer).

This post was written by Forrester CEO George Colony, and it originally appeared here.