Blockchain — a highly encrypted method of distributing data over a network — first came into public consciousness with the rise of cryptocurrencies like Bitcoin and Ethereum, but mainstream businesses have been slow to adopt the technology.
Now, Ravi Sarathy, a professor of international business and strategy at Northeastern, whose new book, “Enterprise Strategy for Blockchain: Lessons from the Disruption of Fintech, Supply Chains, and Consumer Industries,” explores why this lags and still offers solutions to the problems blockchain presents.
Blockchain relies on a distributed network of computers to provide a “very high standard of encryption” where member computers in the network can collectively verify transactions.
When a transaction is certified, it is added to “blocks”, each of which contains information about transactions in previous blocks. As these blocks overlap, they form a chain, an “immutable” digital record or ledger of all transactions that have occurred in that blockchain, Sarathy said. “You can go all the way back to 2009, when the first bitcoin transaction happened, and you can literally… trace every single transaction that ever happened in every single bitcoin.”
Thanks to these mutual proofs, blockchains are very secure. “The Bitcoin network itself has never been hacked. Wallets where people store Bitcoin have been hacked. [and] The exchanges are hacked, which store bitcoins on behalf of the client.
According to Sarati, these secure, distributed digital records represent the next great disruption to traditional commerce. Disruption is important in all industries because it represents the power of “creative destruction,” Sarathy said.
In describing what creative destruction looks like, Sarathy cites the rise of digital photography in the last 20 to 30 years. On the one hand, digital photography destroyed all but the big business of chemical-film photography; On the other hand, the disruption of that industry has led to the spread of photography by anyone who owns a smartphone.
So how can blockchain solve previously conventional ways of doing business?
In essence, Sarati said, blockchain promises to simplify some of the most common day-to-day activities of businesses, from ensuring the authenticity of complex transactions to removing “middlemen” from web-based transactions.
Typically, intermediaries such as banks provide guarantees between two parties exchanging one thing for another. After delivering a product, a salesperson asks, “How do I make sure I get paid? The bank stands for such counterparty trust. “But banks charge fees,” says Sarathy.
With a blockchain solution, “a decentralized network, users can trade directly with each other without the need for an intermediary.
Take the supply chain thrown into stark relief by the Covid-19 pandemic. Traditional supply chains relied on “bills of lading,” Sarathy notes, “because both goods were on the ship, but to provide proof of ownership for those goods. And they could trade.” [bills of lading] between the parties”.
But Sarati was too quick. Hurry up, hurry up, hurry up, hurry up, hurry up Hurry up, hurry up, hurry up, hurry up, hurry up It is a mistake to be too quick to be too quick.
Blockchain technology, however, provides instant exchange of value, not just data.
“Enterprise Strategy for Blockchain” also looks at the reasons why companies are hesitant to adopt the technology. First, because blockchain relies on a large network of computers, the verification process can take time.
In addition, blockchain is computationally intensive and requires significant amounts of electricity, a fact often raised by climate change advocates. But Sarathy says Ethereum — a cryptocurrency similar to bitcoin — has recently adopted new protocols, both of which make the blockchain more energy efficient. And Quick.
The idea of disruption itself can come across as negative, she says, and one of the hurdles companies can overcome is a reluctance to make organizational change. Large businesses are hierarchical, and incorporating decentralized processes can seem like a big ask.
But, Sarathi said, blockchain technology’s promises, such as “financial inclusion,” more secure voting technologies and instant value transfers, outweigh the barriers to its adoption.
Businesses are “part of the ecosystem.” Sarathi says. “Good strategy sometimes requires companies to collaborate across ecosystems.”
“Enterprise Strategy for Blockchain” was published by MIT Press on October 11. As part of the book’s launch, Sarathy will hold a free public webinar and Q&A hosted by the MIT Sloan Management Review on October 19. You can also sign up here. Here is an event that provides access to the webinar recording.
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