Blockchain and SMBs

If you’re a small business owner, you probably recognize the term “blockchain”—and perhaps bitcoin, too—but you’re not intimately familiar with blockchain technology and how it is being used.  

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What is blockchain and how might it impact my SMB?

Oct 30, 2019

Blockchain and SMBs

If you’re a small business owner, you probably recognize the term “blockchain”—and perhaps bitcoin, too—but you’re not intimately familiar with blockchain technology and how it is being used.

That’s okay—and understandable.

After all, most definitions of blockchain make it sound more complicated than it really is. For example, Merriam-Webster dictionary defines blockchain as: “a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large, decentralized, publicly accessible network.”

If you have merely a passing interest in blockchain, a definition like Merriam-Webster’s doesn’t help you visualize how blockchain works.

Moreover, if you’re like most people, there hasn’t been much incentive for you to learn about blockchain, because it hasn’t yet impacted your life or business.

Truth is, there haven’t been many successful applications of blockchain, unless you regard cryptocurrencies as a success.

Meanwhile, much of the work being done with blockchain involves collaborative projects between large enterprises looking to solve specific problems in the marketplace. For example, major healthcare companies aim to use a blockchain-based approach to help reduce the costs and administrative burdens associated with maintaining accurate provider directory data.

But while blockchain is still in its infancy, the technology is actively progressing and likely to become a much larger part of the economy in the coming years. So at this point, it’s worth spending a few minutes to learn more about what it is and how it works.

How does blockchain work?

To visualize how blockchain works, think of it as a chain of blocks—the wooden blocks (emblazoned with individual letters and numbers) you played with when you were a child will do just fine.

Each of the blocks contains information, including a cryptographic hash (a long series of random numbers and letters), plus a timestamp and transaction data, with each of the blocks making reference to the previous block, hence the term blockchain.

Taken together, all those blocks make up a ledger or registry that is administered by a far-flung array of computers (nodes), each of which has a copy of the relevant blockchain.

Using a blockchain protocol—a set of rules that establish how the computers in the network verify transactions and add them to the ledger—the nodes check that a transaction has not been altered by inspecting the hash. Then the transaction is validated and written into a block if a majority of the computers in the network provide verification.

So, for example, if you want to send bitcoin—or another cryptocurrency—as payment, the transaction would be broadcast to everyone on the network, and those in the network would have to approve the transaction before it’s added to the chain and the bitcoin moves from sender to receiver. 

Transparency is a core benefit

One of the benefits of blockchain is transparency; that is, all of the transactions on the chain are public, so the transactions of anyone using the chain can be audited, even those of users who remain anonymous. In that way, it’s not unlike the online encyclopedia, Wikipedia, which anyone can edit—with each edit recorded and available for public review.

It’s important to note that the data in any given block cannot be altered once that transaction has been recorded and the blockchain has been updated. As a result, it’s difficult to hack a blockchain and alter its history of transactions, an enviable trait for any endeavor where data or information security is at a premium.

Blockchain’s potential

So why hasn’t blockchain realized its seemingly enviable potential?

For one, a blockchain initiative can fail due to technical and technological shortcomings, or from an old-fashioned lack of enthusiasm on the part of potential users. Or for the same reasons that any other business tool might fail, like a lack of use for the technology or an unworkable business model.

Meanwhile, because a blockchain is public, some applications raise privacy concerns. And though blockchains were initially touted as being unhackable, it turns out that they are susceptible to a variety of attacks, including so-called 51% attacks where an attacker gains control of more than half of a network’s computing power and uses it to re-write a blockchain’s transaction history.

Blockchain protocols, software clients, and vulnerabilities in smart contracts—that is, “computer program[s] that run on a blockchain network,”1 per the previously linked MIT Technology Review article—are also potential avenues of attack. 

But more and more organizations are pursuing blockchain initiatives, including large IT companies, federal and state organizations, and of course, intrepid entrepreneurs. Sooner or later, some of these initiatives are going to succeed and become relevant to SMB’s.

Blockchain and SMB’s

Naturally, one way that blockchain technology could become important to small business is if cryptocurrencies become a widely utilized form of payment. In that case, you might want to begin accepting bitcoin and other cryptocurrencies at your business.

Another possibility is that a given blockchain initiative might help you save money, or improve your operating efficiency or logistics.

In some cases, blockchain projects might inure benefits to a particular industry, while also combatting a societal problem. For example, Memphis-based Remedichain aims to address the problem of prescription drug waste by using blockchain “as a means to retrieve unused, high-value medications from patients and pass them on to economically disadvantaged patients who are not able to afford them.”2

The future of blockchain

Of course, it would be foolhardy to predict the arc of blockchain’s development. After all, it was just two years ago that bitcoin and other cryptocurrencies seemed poised to go mainstream. Then the crypto market crashed, and the focus shifted to other potential applications of blockchain.

And to be sure, blockchain isn’t likely to be a major disrupter in the next year or two. “Blockchain Based Transformation,” the latest Trend Insight Report from Gartner, predicts that “Through 2022, only 10% of enterprises will achieve any radical transformation with the use of blockchain technologies.”3

But over the longer term, analysts are much more confident about blockchain’s potential, offering that, “by 2026, the business value added by blockchain will grow to slightly over $360 billion, then surge to more than $3.1 trillion by 2030.”

  1. Once hailed as unhackable, blockchains are getting hacked," MIT Technology Review, https://www.technologyreview.com/s/612974/once-hailed-as-unhackable-blockchains-are-now-getting-hacked/
  2. Remedichain home page, https://www.remedichain.com/
  3. “How blockchain will disrupt business,” ZDNet/Tech Republic, http://b2b.cbsimg.net/downloads/Gilbert/SF_June2018_blockchain.pdf
  4. Ibid.

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