Blockchain technology is revolutionizing entire industries. But is blockchain the right solution for your business? Should you implement blockchain? Can your business benefit from blockchain technology? Or will it just be a waste of time?
Leah Zitter at Block Explorer News recently tried to answer that question in an article titled, “To Blockchain Or Not To Blockchain: The Decision Tree with the Answer.”
In the article, Zitter explains the pros and cons of adopting blockchain in your business. He interviews people like Brian Winkers, the founder of blockchain-based money automation company Bitlov.com.
So should you add blockchain? Here are some of the pros and cons to consider when adding blockchain to your business.
Blockchain Isn’t Always Ideal For Small Businesses
Zitter and Winkers claim that blockchain for small business “is a bonkers idea”. It costs too much to integrate blockchain into a small business and doesn’t provide major benefits. In this case, Zitter and Winkers appear to be referencing the idea of adding bitcoin acceptance – not blockchain technology itself – to a business:
“For Winkers, blockchain for small business is a bonkers idea, largely because of Bitcoin. Bitcoin’s platform has problems with scalability: The platform is slow – around ten transactions per second compared to Visa’s 5,000 to 8,000 transactions in the same time span. The ledger became congested. The company itself struggles with internal squabbling.”
Based on this, Zitter and Winkers feel it’s not worth it for small businesses to accept cryptocurrencies like blockchain. Next, they discuss implementing blockchain technology itself.
Adding and Maintaining Blockchain Is Expensive
You can launch your own blockchain at minimal cost. There are plenty of open source blockchains available to be built upon. Their codebases are free for anyone to access.
The problem, of course, is finding a good blockchain developer. We’ve heard reports of blockchain developer salaries reaching into the $500,000 per year range. At minimum, you can expect to pay $150,000 to $200,000 for a halfway decent blockchain developer.
There’s a reason you want to pay a high salary to a blockchain developer: any error in the code or slight problem will force you to dismantle the blockchain and rebuild it from scratch. There’s no rewind button a blockchain, which means you need to get it right the first time – or accept errors in the long run.
Zitter cites a quote from crypto consultant John Levine, who claims blockchain isn’t a great way to save money. In fact, “blockchain is the most expensive database ever invented.”
Will Blockchain Help You Innovate?
In 2017, there were reports of publicly-traded companies adding “blockchain” to their name in order to boost their value. It worked – at least temporarily.
Many businesses look to blockchain as a way to innovate. Blockchain can help take your business in new directions. It can attract investors and push you over the hump during the early startup days.
The problem with this approach is that everyone thinks their blockchain idea is special. In reality, most blockchain startups – like most startups in any industry – will fail. In fact, Zitter claims the failure rate is likely higher than other industries:
“To get some ROI from your blockchain investment, you need some really BIG idea that’s stupendously different than competitors and that delights hordes of people. (Think of a Ripple or Binance). Such a feat, according to Winkers, is performed by only two out of every hundred ICOs or startups.”
The problem with adding blockchain is that too many people do it for the wrong reasons. Startups add blockchain or crypto technology to their product in order to make a quick buck. It’s an easy path to fame and wealth. In reality, building a blockchain startup is like building any business, and companies that implement blockchain for the wrong reasons will inevitably fail.
Will Blockchain Technology Help You Save Money?
We’ve seen reports about companies saving millions of dollars with blockchain. Zitter, for example, cites a report from management consulting firm Accenture and McLagan that indicated blockchain can lead to cost savings of 70% for financial firms.
In contrast, the National Institute of Standards and Technology (NIST) released a report indicating the opposite. Blockchain is not a guaranteed way to save money. Yes, blockchain can be used to replace existing legacy systems and costly programmers. However, this isn’t guaranteed to help you save money.
NIST specifically discussed the idea that blockchain can’t fix central problems faced by businesses. Blockchain can’t control the conduct of users, for example:
“The report pointed out that blockchain can’t control users’ conduct. The NIST also highlighted the misconception that blockchain is “trustless” – you need a great deal of trust in the technology, developers, and user cooperation for the blockchain to function. Further, users must manage their own private keys that, once lost, are harder to recover than usernames or passwords on centralized platforms.”
The report also talked about how blockchains are “massively inefficient” because of the need to archive everything, update the blockchain, and record the entire history of everything on the blockchain.
There’s also a security concern with blockchains: large public blockchains like bitcoin are incredibly secure because they’re powered by a network of nodes that verify every transaction. Smaller, permissioned blockchains in a business, however, don’t have the same level of security:
“Finally, but not conclusively, blockchains also require a computational challenge to restrict the creation of new blocks. If it’s too easy, hackers could temporarily mobilize enough computing power to rewrite history; if it’s too hard, each new block will consume megawatts of electricity. And electricity for blockchain costs hundreds, if not thousands, of dollars.”
Three Questions To Ask Before Implementing Blockchain
To conclude, Zitter recommends businesses ask themselves three sets of questions to determine whether or not to implement blockchain:
If you need a database, are all the writers or participants on your team known and trusted? Is there data you need to hide from certain team members? Do you hire trusted third parties? Do you need to control functionality? If you don’t need to hide data and you trust your team, then you can use a standard database or a public blockchain. In this situation, setting up a blockchain is probably not worth it.
Does more than one participant need to be able to update the data? Do you need to hire third parties that are potentially untrusted? Do you have confidential data? Do you have problems with certain members of your team? In this situation, then a permissioned or hybrid blockchain can make sense for your business. It allows you to control access to data and prevent untrusted individuals from accessing crucial information.
Does your data need to be kept private? Do you need to control who can make changes to the blockchain software? Do you have the budget for blockchain programming and ongoing blockchain maintenance? If so, then a private blockchain may be worth implementing.
Ultimately, a growing number of blockchain consulting firms can help you decide if implementing blockchain is worth it for your business. However, don’t automatically assume blockchain will save you money: implementing blockchain is like implementing any new, expensive technology and requires careful consideration.