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Blockchain – Disruptive chances and challenges from an entrepreneurial perspective

November 24, 2015

Major challenges since the start of the Internet are trust and security. Right now we are using lots of 3rd parties which functions as trustees in order to keep online transaction running smoothly. Even a major player like Facebook is nothing else than a platform of mutual trust which tries to guarantee that we are who we promise to be. Blockchain – the Bitcoin underlying technology might disrupt all of this by digitally enabling trust between two unknown entities. Sounds amazing? Yes, it might be.

 

Let me explain Blockchain first, as this is the key to understand how this can disrupt the digital space a little bit more. Blockchain is a technology that was invented by the inventor of Bitcoin, the crypto-currency, as a technical standard to make this virtual currency secure. The idea was very simple: If you want to have a trusted currency with high reliability, you need to be independent of large databases which can be hacked and you need to find a way that every transaction done cannot be changed (or manipulated) afterwards.

 

The solution – Blockchain – is relatively simple to understand. Every transaction creates a block of data, which is unique and by that automatically generates a unique code. In normal life this code could be hacked. In order not to allow this, all blocks are chained in a very long chain in the order of their appearance (based on the transaction). Every unique block code will depend on the block before and influence the code for the block thereafter. This means that if you want to change a block later on, you have to change all (!) blocks in the chain, which is next to impossible. Now you can say that this chain can be hacked but this chain is not laying on a special server but it is copied and saved as a duplicate on every computer signed up to this platform. By that you would have to additionally hack all the computers, change all of them, change the number of all transactions that followed on this block later on and then copy it back again. That would be a tremendous amount of work, even if you do not have to hack. So it gets much more complicated if you have to be intrusive to get access to this data.

 

Now you understand what is interesting about Blockchain and that it is relatively secure.

 

Now step back and imagine that based on this, every process involving contracts – which are not legally binding in digital form at this moment – can be digitalized and by that be legally binding. As you have two separate instances that trust each other and you have digital documents that can be contracts, which cannot be changed anymore due to the Blockchain, you can disrupt several processes and even markets.

 

Just imagine what this could do…:

  • Real estate buying – Digitalize the whole transaction process and have a digitally ledger for all alterations, instantly available when you want to buy / sell something.

  • Patents – have all contracts about patents digitally binding available, and see all changes done to them

  • Money transfer – Exchange of funds between two persons that do not know each other without any kind of intermediary, which would lower the cost immensely

  • Buying shares – The Deutsche Börse is already trying (Pilot) to use Blockchain to have some kind of digital ledger for all transactions based on shares

  • Issuing insurance contracts – Instead of sending around huge piles of paper you can do all your insurance paperworks on a digital basis

 

Just five ideas that let you imagine how far a disruption with Blockchain might go in the near future.

 

When everything seems so clear, what are the challenges with this technology?

First, you have to say that Blockchain is relatively new and it only works in some smaller cases, e.g. Bitcoin as a currency. Therefore, we are not talking about a test stadium, but at this point of time, there are some issues not solved finally if you want to use it in a bigger context, i.e. with millions of users.

Another thing is that the Blockchain is on several computers so these need to be updated from time to time, this will need a much bigger processing power when we are talking about a million transaction per minute. Right now this is an issue where companies are trying to find a solution, for example the Deutsche Börse AG in the above mentioned project where they need about 50 times the processing power for using Blockchain compared to what they are using now.

Furthermore there are some legal issues as purely digital contracting based on Blockchain is not possible in all these processes you can imagine as there needs to be a non-digital register, e.g. when it comes to private real estate.

 

These are just three things that make Blockchain a little bit more complicated to use right now. There are some other difficulties the technology has to overcome the next years too, but as enterprises are starting to invest into it, there will be lots of ideas coming up the next months. As we are already working on some Blockchain based process digitalization in private real estate, we know that this is a long way, but a very promising one.

 

In case you have not started to think about Blockchain and how this can disrupt your business, just let us know and we will try to find the answers.

 

 

In case you are interested in diving down a little deeper I can recommend this book from Melanie Swan.

 

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