First published on betterworkingworld.ey.com
Blockchain is more than just a data security protocol — it could transform the way industries and individuals do business
Blockchain and the proliferation of the Internet of Things (IoT) presents an important opportunity to revolutionize supply chains, payments and revenue streams. But there are several unknowns and a number of risks for organizations that fail to get a grip of this rapidly emerging technology. What do business leaders need to know?
What is blockchain?
- The short version is that blockchain is a form of data and digital money transfer that is almost impossible to hack — a form of digital-era triple-entry bookkeeping.
- To date, the biggest concern around the digital transfer of sensitive information or money has been security. Blockchain promises to remove that concern.
- As The Economist puts it, this makes blockchain “an apparently mundane process that has the potential to transform how people and businesses co-operate.”
How blockchain works: distributed checks and balances
If an attacker only has to hack one computer or device to get at your data, their job is pretty easy. But what if they have to get into millions?
“Blockchain is a database and a network,” says Obreahny O’Brien, who leads the business solution development for blockchain in EY Strategic Insights and FinTech Strategy practice. “It allows both data and value to be transferred via a distributed system that runs, records and compares multiple copies of secure, encrypted transactions in near real-time on multiple computers.”
No single machine contains all the information needed to extract information and value from a transaction, and the only way to convince the system to believe a false transfer is to gain control of more than half the devices in the network.
What this means is the more devices that are running blockchain software, the more secure it becomes.
Opportunity #1: Streamlining cross-border business
Because of the ease of transfer of information, and the automated tracking of every transaction, blockchain can simplify and partially automate elements of accounting and compliance, making it easier to do business with new global customers and enabling elements of the audit process to be completed with even greater accuracy. Auditors will therefore be able to focus attention on non-automated elements of the audit.
“Blockchain has increasing relevance to the oil and gas industry as a mechanism to reduce operating cost. Even more relevant, however, is blockchain’s ability to transform the contracting process given its aptitude to provide a secure form of collaboration across multiple parties” says Fay Shong, EY Oil & Gas Strategy Leader.
Considering blockchain’s origins as the underlying technology of the virtual currency bitcoin, it is also likely to facilitate new systems of foreign exchange via virtual currencies that can further reduce the cost of cross-border business.
Opportunity #2: Encouraging adoption of the Internet of Things
The rise of the IoT is set to bring a new era of devices and networks that blend the physical and digital worlds. At the heart of this new transformation is the near real-time collection, transmission and analysis of data.
“As the oil and gas industry increasingly leverages sensor technology across upstream and downstream assets, the ability for blockchain to store transactions and accounting data directly on these devices can compress process time by connecting assets directly to services contracts,” says Shong.
The challenge has not just been how to transmit such sensitive data securely — but also how to encourage suppliers of data to provide it in ways that are cost-effective for them.
“Blockchain enables you to take the generated data and transmit it securely and in real-time, in a way that was previously very expensive,” says O’Brien. Its security and cost-effectiveness now means “you can sell micro bits of data and receive micro payments in exchange — all in near real-time.”
This means that anyone — from the largest organizations to individuals — can become data providers and receive payment in exchange. This should encourage the adoption of more IoT devices, as smart devices no longer become simply expensive new gadgets, but potential ways to earn money.
Opportunity #3: Changing what business you are in
With blockchain enabling secure IoT data transfer and payments, multiple new opportunities present themselves to the canny businessperson.
For instance, “You can put a sensor on a tractor,” says O’Brien. “This can track soil or weather conditions in near real-time.” As well as providing the farmer with much more information to enable them to adapt strategies to improve output, they could also sell this data to third parties that want to predict yield, perhaps for investment purposes.
It means you may no longer be in the business you think you’re in. As O’Brien puts it, “The tractor manufacturer or even the farmer shifts from being simply the producer of agricultural equipment or crops to being a supplier of information.”
This in turn should vastly increase the amount of available data on every aspect of life and business — which with the right analysis will facilitate whole new ways of working and thinking, enabling the development of new strategies and new business models.
Inevitably there are some risks with such an easy, secure system of transferring data and money. One of these is taking its simplicity for granted.
As with many new technologies, regulators are still working out their approach to IoT data and payment transfers. For example, how should cross-border payments be taxed when they are automatically and near-instantaneously routed through potentially thousands of machines in dozens of countries? “Proper structuring, from both a regulatory and tax perspective, is necessary to ensure that you are minimizing any potential exposure,” warns O’Brien.
Meanwhile, there remains the question of who will reap the most benefit from this emerging super network of monetizable data transfers. Is it the people who generate the data — or the people who run the networks?
For existing major players in financial and information services, blockchain’s internet-based software origins could also pose a threat. If your business is traditionally offline, leaders in the online space could have an inherent advantage in this new digital transaction market due to their more established digital networks, business models and customer bases. With blockchain, social networks have the potential to transform into money transfer networks. Could this then remove a need for banks?
Dealing with disruption
As with so many digital breakthroughs, it is this potential disruption of existing businesses and business models that is the biggest threat from blockchain.
Information is power, and blockchain has the potential to vastly increase the amount of information available. New players are likely to find ways to analyze that information to identify whole new ways of working, just as has already happened with existing digital technology. Current industry leaders could see their dominant positions challenged. As with any new system of automation, some business services, jobs and career paths could also become obsolete — while new ones could be created.
“Whether you are a multinational, a small business or an individual, blockchain gives you the opportunity to take part in an ecosystem of data transfer and payment that we haven’t had access to before,” says O’Brien.
This is why “business leaders should not solely look at this technology as a way to improve current processes, but more so as way to pivot their business models. How will blockchain enable them to do business in areas they have not previously explored, to assess and respond to their customers’ needs, and to find the right partners to help them adapt and thrive?”
EY Legal Services Contacts:
Richard Goold – Global Technology Law Leader