September 30, 2022

How Can Blockchain Technology Disrupt the Existing Business Models?

Blockchain technology is gaining momentum with more and more diverse applications, as well as increasing numbers of users  involved in its applications. This novel technology rooted in cryptography which has been popularised by Satoshi Nakamoto  who showed how this technology can be applied to develop a cryptocurrency.

Generally, blockchain makes up a distributed ledger, the control of which may be dispersed among different computers in the network, thus eliminating the need for trust towards a single administrator of such a ledger. In other words, blockchain is a distributed  database comprising records of transactions that are shared among participating parties.

One of  its possible  applications is  a cryptocurrency which  is a chain of digital signatures.  Each transaction conducted with blockchain technology is registered, time stamped, and consecutively widely  published with a unique symbol. Transactions are blocked, and described by a unique hash, a nonce and by a hash from a previous block. Therefore, an attempt to forge a block involves the need to forge preceding blocks. This makes the mechanism safe from attempts to change a transaction

Blockchain and Business Models

Blockchain technologies in most of these areas could additionally improve the efficiency of operations and facilitate compliance with regulations

While the  primary use  of this technology has hitherto been in the  creation of virtual currencies, such as bitcoin,  blockchain technology offers broader opportunities,  including any transactions requiring authentication. Such opportunities appear in public administration  and supply chains, particularly those involving valuable and forging-sensitive products.

The industry experts has identified of three  generations of blockchains:

i.blockchain  1.0 refers to  digital currency,

ii.blockchain 2.0 to digital finance,

iii.blockchain 3.0 to digital society.

Irrespective  of the uncertain  future of cryptocurrencies,  applications of blockchain technology in the developed markets are abundant.

Cases of financial institutions working towards the application of blockchain technology in payments include major world stock  exchanges, among which are the London Stock Exchange, CME and Deutsche Borse.

Financial and public services  industries make up a specific setting for radical innovations, such as blockchain, due to their vulnerability to possible failures. Therefore the identification of the right setting for experimentation should be quite important for its implementation.

While in the case of cryptocurrencies blockchain’s key contribution is in terms of building systemic trust in transaction security, trust might not be an issue when the technology is used by  large players, such as leading exchange markets which have developed their own instruments for ensuring trust.

Blockchain technologies in most of these areas could additionally improve the efficiency of operations and facilitate compliance with regulations. One of the areas where blockchain is already offering benefits are cross-border payments.

Smart Contracts

Another important way in which blockchain can affect business is via the implementation of so called smart contracts, which are programmable contracts that could enforce themselves upon the occurrence of predefined conditions. The potential of these contracts can be particularly high in  those fields of financial activity that lag behind in terms of processes, speed of settlement, risk of fraud, back-office costs or operational risks.

Therefore,  their benefits could be the highest for syndicated loans, insurance, which is often subject to fraud, or the aforementioned equity markets and payment systems. Unquestionably, smart contracts also face challenges, particularly in legal area, such as the issue of contract immutability, secrecy and enforceability by the judicial system.

Applications of blockchain technology extend far beyond  financial services.

Blockchain technology can be used in sharing services such as computing, offered for example by MIT’s Enigma, or the direct renting of apartments, office space or wi-fi routers, as declared by the German startup Other sharing economy applications include car-pooling, where platforms such as Lazooz and Arcade City are operating, decentralised trading platforms, exemplified by OpenBazaar or distributed social networks like Akasha.

Blockchain thus eliminates the need for intermediaries providing tools for a  secure contact between the provider and the user of services.

The range of industries and activities where this solution could be operational is huge, including the music industry.

Another opportunity related to the cost efficiency effects of blockchain involves decreasing the scale of transactions  in which large retailers are involved. Large retailers might be inclined to increase their supplier networks and source from much smaller ones, if the costs of carrying additional products go down.

Blockchain technology is not a stand-alone technology, but  rather works alongside other modern technologies, such as smart contracts  or encrypted chips through which smart tagging can be used to authenticate  luxury products , including arts, as well as food and medicine.

The reasons for this authentication may vary from safety concerns in the case of pharmaceuticals or food to social responsibility in  the case of sourcing diamonds.

While authentication offers huge benefits, it also has certain limitations.

The key challenge may lie in developing means and rules for authentication so that certain products fulfil predefined conditions,  and blockchain technology is not going to substitute these authentication pro-cesses. What it can do, however, is to decrease the probability that frauds occur between the production point, where authentication occurs, and the final consumer. Interestingly, blockchain  technology may not only provide disruption in well established business models, but it can offer solutions to industries with structural problems.

Another industry where blockchain may bring a long-awaited solution to pressing structural problems is the music and media industry. Forgery and the spread of fake news hurt the industry and limit its growth potential while the rights holders of content are poised to find a sustainable business model for monetising their creative talent.

Blockchain offers the prospect of bypassing content aggregators and platform providers, hence resulting in direct and efficient delivery of products. Not only will the new process validate the originality of the content, but a new business model of commercialisation will emerge as an opportunity. Confirmed subscribers of the envisioned blockchain community would be more willing to pay for content with the pleasing knowledge of their fees being channelled to the rightful owners.

All the more, fee payment may be more customised and economical as micro-transactions will be the basis of the new business model:

i. each consumer will pay content owners directly for individual product items (e.g. songs or news articles)

ii.they will no longer be forced to purchase bundles including content they do not need.

As for the supply side of  the industry, marketers will also achieve greater efficiency through more concentrated access to the subscriber community.

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