How Blockchain Can Be a Creative Business Disruptor

Blockchain – a highly encrypted method of transferring data over a network – first came into public awareness with the rise of cryptocurrencies such as Bitcoin and Ethereum, but large companies have been slow to adopt the technology.

Now, a new book by Northeastern professor of international business and strategy Ravi Sarathy, “Enterprise Strategy for Blockchain: Lessons in Disruption from Fintech, Supply Chains, and Consumer Industries,” explores the reasons behind this reluctance and offers solutions to the problems blockchain still faces presents.

Blockchain relies on a distributed network of computers to provide “a very high standard of encryption,” says Sarathy, where member computers in the network collectively validate transactions.

When a transaction is certified, it is added to a “block”, each of which contains information about transactions in the previous blocks. When these blocks are stacked up, they form a chain, an “immutable” digital record, or ledger, of every transaction that has ever occurred along that blockchain, Sarathy says. “You can go all the way back to 2009, when the very first Bitcoin transaction happened, and literally track … every transaction in every Bitcoin that has ever been created.”

Thanks to these collective validations, he says, blockchains are very secure. “The Bitcoin network itself has never been hacked. Wallets have been hacked, where people store Bitcoin, [and] exchanges have been hacked, which store Bitcoin on behalf of the client,” but the Bitcoin blockchain itself has remained secure.

According to Sarathy, these secure, distributed digital records represent the next big disruption to traditional business. Disruption is important in any type of industry, says Sarathy, because it represents a force of “creative destruction.”

Sarathy describes what creative destruction looks like, citing the rise of digital photography over the past 20 to 30 years. On the one hand, digital photography nearly wiped out the big business of chemical film photography; on the other hand, the disruption of this industry allowed the proliferation of photography in the hands of anyone who owns a smartphone, and a whole new marketplace for both digital photographs and new camera equipment.

So how can blockchain upend previous standard ways of doing business?

Essentially, Sarathy says, blockchain promises to simplify some of businesses’ most common day-to-day activities, from validating the authenticity of complex exchanges to removing “middlemen” from online transactions.

Traditionally, intermediaries such as banks provide insurance between two parties who exchange one thing for another. After delivering a product, a seller may wonder, “How do I make sure I get paid? The bank stands for that type of counterparty trust.” Sarathy says, “but the bank charges a fee.”

With a blockchain solution, “a decentralized network, users can transact directly with each other without the need for an intermediary.”

Take supply chains, a field thrown into sharp relief by the COVID-19 pandemic. Traditional supply chains relied on “bills of lading,” notes Sarathy, to provide “both proof that the goods were on the ship, but also the title to those goods. And you can shop [bills of lading] between the parties.”

But, Sarathy is quick to note, these are all paper documents, subject to damage, loss, theft, forgery and simple mistakes.