Implementing blockchain into business: what risks to expect and how to avoid common mistakes

For many of those even vaguely familiar with the term, the word blockchain is strongly linked to cryptocurrencies. However, blockchain is only a technology, and as such a tool, it can potentially be used for many purposes. The proper application of the technology can improve business processes, like providing a guarantee of the authenticity of an item during shipping.

The pandemic of 2020-21 has accelerated the mass transition of businesses online and particularly the introduction of blockchain into businesses. Now more and more businesses are introducing blockchain for their businesses needs. But does it mean that everybody needs blockchain today? We’ll talk about how your business can benefit from blockchain technology, how to avoid common mistakes and what risks are associated with it.

What is blockchain as a technology?

First, we need to understand what blockchain is. As the name says, it is a continuous chain of blocks of information that cannot be deleted or edited. Information can only be added. Another feature of blockchain is that it is stored in a decentralized manner across multiple computers. This serves well in providing the protection of the information stored: should something go wrong with one or several computers, the blockchain is going to be backed up by the rest of the computers.

This is what blockchain brings to the table: confidentiality, no need for intermediaries, and increased speed of financial transactions. This is what a conventional database cannot cater.

The top popular problems blockchain can solve

Let’s look at what blockchain has shown to work well with:

Supply chain management

Used right, the technology becomes a good tool for combating counterfeit products. Blockchain can help track the entire supply chain, starting from the manufacturer. If required, the products can be checked for compliance with environmental and other standards. For retailers who work with a large number of suppliers, it will help increase and strengthen the trust of shoppers.

Increased security and transparency of financial transactions

Consequently, blockchain helps to keep scammers and cyber-criminals away from the market.

Reduced costs and timing for cross-border payments

Compared to the traditional payment system used across the world, blockchain reduces the financial and timing costs of cross-border payments. This makes financial services accessible to a wider range of people.

Helps resolve disputes

Since no data stored in the blockchain can be erased, edited, or distorted, the authenticity of such information should not be questioned.

Where can the use of blockchain be reasonable?

As any other technology, blockchain may be beneficial if used appropriately. Potentially, blockchain can be used in any area of a business. At the same time, we need to understand, in which situations the use of blockchain is going to be reasonable, and in which it is not. The following questions will help with that:

• How many parties are involved in the data exchange and storage?
• Are there intermediaries that make the process more complicated and expensive?
• How essential is the speed of decision-making and transaction execution?
• Should there be a procedure for verifying the authenticity of information?

If the answer to most questions is yes, then the company should consider introducing the technology into business processes. At Interactive Design, we have more than 5 years of experience in blockchain and smart-contract development and consultation. Contact us with your requirements or even a short description of a problem, and we will take it from there.

Also remember that in order to fully realize the functionality of the technology, blockchain must be used with the interaction of hundreds and thousands of participants. It may not sound obvious at first, but using blockchain is rather poorly suited for local use within a single company.

?? Blockchain brings the greatest benefit to companies with a large number of suppliers, buyers, franchisees, who need to be constantly monitored.

What risks are associated with blockchain introduction?

Despite the technology being relatively new, some experience has been gained, which allows speaking of the risks. The risks can be broken down into five groups:

• development stage risks: blockchain development requires specific protocols and algorithms to be used; any deviation from them would violate the integrity of the protocol and the entire system, making it vulnerable to external hacker attacks, fraud, and abuse within the system;
• data exchange and transmission risks: if data exchange and transmission happen between different blockchain systems, the number of potential mistakes grows. This can negatively affect the sustainability of business processes;
• security keys usage risks: blockchain relies heavily on private and public keys. Despite being decentralized, the technology is still used by people. The human factor cannot be completely excluded – people make mistakes. On top of that, if a user works from their PC, there is always a possibility that all the critical data (including credentials) may be stolen from a compromised PC.
• infrastructure risks: as the system grows and the number of blocks in the blockchain increases, the risk of data being reset due to excess in the transaction limit also increases; another sensitive area is the release of updates to the system – if improperly coded, they may lead to data loss or damage;
• legal/smart-contract risks: while blockchain makes it possible to conduct business around the world, removing technical boundaries between parties from different countries, there is still no unified legal regulation of blockchain. This means that legal difficulties may arise when resolving conflicts;

Blockchain is a new technology – mistakes are inevitable

Take time to study the common mistakes some businesses make when trying to introduce blockchain.

Not fully understanding the advantages of blockchain over a conventional database

Using blockchain for internal workflow will not bring much benefit, and its development may come out pricy. So the very first thing to do is to determine, in which areas blockchain technology can do the best, and in which it is better to use traditional tools.

Studying the experience of other businesses in the market can help to assess the need for blockchain implementation. For an even better assessment, blockchain developers can provide professional advice.

Difficulties with integrating blockchain into existing technologies and misconceptions about versatility

Blockchain in itself is simply a database. For instance, in order to provide deliveries, you would need a user interface, interaction mechanisms, and more – all on top of the blockchain. Furthermore, the global market is full of disparate platforms offering solutions to various problems (privacy, tokenization, etc.) Compliance standards are yet to be developed, and there are no universal options that cover everything at once.

High expectations when using smart contracts

Smart contracts are one of the most attractive blockchain features. Basically, these are the terms of a transaction, coded into the blockchain. The contract is executed automatically as soon as the conditions are met. However, the technology is far from its best. There are still issues with scalability and manageability. This complicates the use of smart contracts, especially, considering that at the moment there is no unified legal regulation.

How large companies use blockchain

A great idea on the way to introducing blockchain to your business is to take a look at how it is used by some big players in the market.

One popular and obvious use of blockchain is to simplify and secure payment procedures and processes and to offer a cheaper way to send payments. For example, Ripple has established partnerships with over 300 clients, including Santander and Western Union. Their xCurrent service allows making calculations in real time.

We also mentioned earlier how blockchain can help with the supply chain management. Major tech companies, such as IBM and Accenture, develop enterprise blockchain solutions for their clients.

In 2018, IBM successfully launched the Food Trust Network blockchain network based on the Hyperledger Fabric protocol. Large retailers can use it to track food products throughout the entire supply chain from the manufacturer to the store.

Another successful IBM project was implemented with the Danish corporation Maersk, the world leader in the field of container shipping. The TradeLens blockchain platform allows shippers and cargo owners to exchange both transactions information and financial documentation.

This is how it works in a nutshell:

• the recipient sets requirements for documents;
• the sender uploads them to the online storage;
• the data storage location information appears in the blockchain;
• a warehouse employee confirms the delivery of the goods using an individual encrypted signature;
• the recipient confirms the delivery in the same way.

Of course, there can be more participants involved – we would need to include customs, for example, in case of international shipping. But the idea of the process remains unchanged: each participant uses specific software to record information about all transactions at all stages. Each participant confirms their actions with a private personal key.

Blockchain is not perfect!

You may feel enthusiastic about blockchain benefits, but blockchain is not perfect, as it may seem at first glance. According to a number of experts, there are areas in which this technology, on the contrary, can deteriorate reliability. During transactions, mathematical reliability does not protect against legal imperfections, and virtual tokens, which are becoming popular, have little connection with the real physical world.

Final note

Blockchain is a progressive technology, but in no way is it a universal solution for all problems. It may improve some processes, yet come out useless for others. It is important to remember that each blockchain solution is individual and is developed for specific business needs. Therefore, the development and implementation of blockchain solutions is a promising industry that is worth studying.