Ignore these 5 Blockchain questions at your peril

As the adoption of Web3 technologies such as Blockchain catches steam, it is more critical than ever for organizations planning blockchain implementation, to be well-informed about the opportunities they may miss, as well as the potential risks that they may unwittingly expose themselves to. Else we may end up repeating a major blunder of the 2nd Industrial Revolution.

The biggest blunder during the 2nd Industrial Revolution

Electricity was introduced to the manufacturing process during the Second Industrial Revolution that began in the 1870s. However, it took almost 30 years for the full benefits of electricity to be realized by the manufacturing industry!

This is because most manufacturers simply replaced steam power with electricity without realizing that to take full advantage of the new technology, they had to change their entire process, starting with the very layout of the factories. This lack of knowledge and awareness led to three decades of missed opportunities in terms of increased efficiency, productivity, and quality.

In retrospect, this delayed adoption of electricity had significant consequences on economic development, social equality, and environmental sustainability. For instance, communities that lacked access to electricity were often unable to take advantage of new technologies or industrial processes, leading to lower productivity and stunted economic growth.

Let’s not relive this piece of history.

I mention this because we are seeing something very similar happening again. The last several years have seen a lot of buzz around Blockchain and Web3, but knowledge in the manufacturing industry about these technologies is very superficial, and we see a very low level of awareness about the inherent potential, capabilities and risks of Blockchain.

By assuming that blockchain is just a patch that can be applied seamlessly to legacy systems and infrastructure, without making any other changes to the eco-system, we may well be repeating the same mistakes that were made in the late 1800s.

Educating and training the internal teams on Blockchain and Web3 is the only way to ensure that your organization derives the full benefit from the implementation of the new blockchain-based systems.

"Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly." ~ Vitalik Buterin, Co-founder of Ethereum

The 5 Questions

If you are beginning your journey toward blockchain implementation, these are 5 questions you should ask yourself:

1.??????Is the blockchain solution appropriate to your needs? Do you need to merely store and transfer value, or do you also need it to support smart contracts? Or perhaps you need more fine-grained control over access and permissions than public blockchains offer? A lack of knowledge about the different types of blockchains and their specific use cases may lead to the adoption of a blockchain solution that is not the best fit for your needs.

2.??????Have you fully secured your digital assets? Make sure you implement proper security measures to protect company assets and data. Encryption can be used to protect the privacy of data. Digital signatures can be used for the authentication of users, while hashing can be used to verify data or document integrity. Multifactor authentication such as a password plus biometrics can enhance the personal security of the users. Risks such as fraud, unnecessary delays, and human errors can be greatly reduced by utilizing self-executing smart contracts. And, obviously, a company that does not use multi-signature transactions or store its private keys securely may leave its digital assets and artifacts vulnerable to theft or hacking.

3.??????Is your new system compliant with your region-specific or country-specific regulations? Some countries such as the US treat ICOs as a security offering and subject these to security regulations. Several European countries such as Malta, Switzerland, and Portugal have crypto-friendly regulatory frameworks, while countries such as China have banned crypto transactions. Others such as India tax crypto trading heavily but are yet to comment on the legality of the crypto transactions.

Many countries also have strict KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations that disallow anonymous or pseudonymous transactions. In addition, Data Protection and Privacy laws may vary by country and region and a company may use blockchain to store and transmit sensitive data without realizing that they are in violation of data privacy laws, resulting in significant legal and financial consequences.

4.??????Is your organization ready for decentralization: In a decentralized SCM system, all parties involved in the supply chain have equal access to information, making it simple to pinpoint areas of inefficiency and processes with low alignment.?

However, if the supply chain team is not familiar with the principles of blockchain, and the features available in the system, they may not be able to effectively communicate and coordinate with suppliers, leading to misaligned incentives which in turn will cause inefficiencies in the supply chain.?

Or, a company adopting a decentralized organization structure (such as a DAO) may struggle to achieve consensus among its members, leading to delays in decision-making which results in internal conflict. Or your company invests in a blockchain project that claims to be decentralized, and later learns that it is actually controlled by a single centralized entity, which puts your entire investment at risk.

5.??????Can your team utilize the key features of the new system? For example, a blockchain-based inventory tracking system can be used to track numerous parameters, including the country of origin (COO) of raw materials, as well as whether it comes from an ethical and green production process. This makes it easier to track the energy consumption, and carbon footprint, identify the source of quality control issues, and improve the overall product quality.?

?Blockchains provide internal teams with real-time updates on the production process. This and other relevant information can be shared with customers to bring transparency and build trust and enhance reputation. However, without a proper understanding of blockchain features, and without relevant training, a manufacturing company will not be able to fully leverage these benefits, and may miss opportunities for cost-saving through factors such as disintermediation.

"Anything that can be conceived of as a supply chain, blockchain can vastly improve its efficiency- it doesn’t matter if its people, numbers, data, money." ~ Ginni Rometty, CEO, IBM

To conclude

Reduction of potential risks associated with blockchain implementation and usage will only be achieved by providing internal teams with training on Web3, Digital Transformation, and Blockchain. And ideally, such implementations should happen under the guidance of experienced blockchain professionals.?

A better-educated team can help the organization reap multiple benefits: Organizations will develop the capability to optimize operations, improve supply chain management, and ensure energy efficiency. They will also improve product quality, align incentives with suppliers, build trust with customers, and save costs.

Ultimately, all of this will increase the overall efficiency of your business, in more ways than you can imagine today.?

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