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 value 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 the 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 seems to be sexy. Utopians, tech-hipsters, libertarians, entrepreneurs, tech-artists, preppers and other actors (criminal 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 insurance”, “big government”, “big whatever”; a get rich quick way; or a way to reconstruct society into a freer and user-controlled form, using code. The preferred narrative is that the web was stolen by the Amazons of the world and can now be taken back with blockchain through the elimination of the middle man.
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 like mining to incentivize 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 middlemen are all over 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 doesn’t include the ecosystem rent seekers like Gisele Bündchen who get paid to sponsor, entrepreneurs trying to generate quick riches from a technology 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 conflicted, they have the potential to be good technology for a group of loosely connected buyers and sellers to engage in trade without any of them being able to cheat or control the others. A good example: a seafood supply chain 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 “fresh fish” blockchain can enable all parties to participate in the trade of seafood in a simple, rapidly deployable and verifiable way. Expect many blockchains to be built for these “all are equal” trading applications. But don’t expect them to usher in a brave new world where blockchain guillotines chop 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 overhaul society or existing business structures.

What it means

1. Apart from the world of cryptoassets (where most blockchains are deployed today – and the subject of my next post), a niche technology area will develop around the blockchain architecture. Don’t expect it to overwhelm the centralized database model – we estimate that only 16% of enterprise computing 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 ledger systems that share many characteristics with blockchains. Again, a niche business.
3. Unified business models will gain popularity. Blockchains will reduce friction in intercompany commerce applications—supplementing and potentially replacing legacy protocols such as electronic data interchange (EDI) to enable faster distributed and more reliable business networks. Blockchain-connected small companies will more successfully compete with dominant legacy networks in financial services, e-commerce and supply chains. Again, these will be basic, rudimentary networks, useful in limited applications.

What CEOs Should Do

First of all, and perhaps most importantly, separate blockchain from crypto and calmly look through the hailstorm of hype and hype that surrounds both. Yes, crypto is crashing, but that doesn’t mean blockchain is crashing.

Second, identify the mundane segments of your supply chain where better trust will pay off. Just like in the fresh fish example, 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 trust security to drive better results for your customers—that’s the best place. Here is a very short Forrester report that gives a good 10-year look ahead at blockchain in the enterprise (precisely if you are not a customer).