Blockchain Data Storage May (Soon) Change Your Business Model

Blockchain is a data storage technology with implications for business that extend well beyond its most popular application to date — the virtual currency, Bitcoin. To be sure, the financial industry is taking notice of how it might use blockchain. Even the U.S. Federal Reserve is optimistic, and a consortium of 42 top banks recently demonstrated a proof of concept, with Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit, and Wells Fargo trading mock shares and money. These are staid financial institutions, not breathless startups.

But what is it? In short, blockchain is an approach to storing data that allows a ledger of transactions that …

• can be visible to anyone, allowing transparency into the complete history of the ledger;
• can be distributed across many devices, supporting many independent copies and sources of data;
• can be verified as consistent, giving confidence to users that the embedded data is correct;
• can work with intermittent connectivity, supporting data generation and replication without robust networking requirements;
• is resistant to malicious actors, preparing for widespread use where all users cannot be trusted.

BitCoin, for example, provides a distributed database of coin ownership that is used to exchange coins between parties without requiring mutual trust. While the Bitcoin technology works as promised, virtual currency users have brought negative publicity — everything from valuation fluctuation and exchange collapses to use in ransomware, outright theft, and clandestine activity on the online drug-dealing site, Silk Road.

The less-than-saintly uses of new technologies seem to gather early attention — for example, early adoption of videotape is often associated with adult content and product piracy, illegal weapon manufacture with 3D printing, drug delivery with drones, and so on. Nefarious users can be early adopters, too — and may be quicker to adopt a promising technology that lacks institutional, organizational, or regulatory constraints.

However, ignoring blockchain because of some dastardly uses would be throwing the baby out with the bathwater. Instead, managers need to build their organization’s “absorptive capacity” around this topic for at least three reasons: (1) the potential effects on organizational value chains, (2) communication within and between organizations, and (3) benefits from cooperation.

The Effect on Value Chains: Disintermediation

The last 20 years haven’t been kind to intermediaries.