Blockchain is perhaps best known as the technology underlying the virtual currency Bitcoin. The “Harvard Business Review” describes it as “a vast, global distributed ledger or database running on millions of devices and open to anyone.”
If this sounds like a nebulous concept, perhaps it is because “blockchain’s definition is stretching to the point where it no longer refers to a particular technology or solution” although “the emergence of blockchain does signal something new.”
In order to investigate what this something new might mean for the next generation of small businesses, Research Economist Miriam Segal attended the Blockchain Opportunity Summit in New York City on Dec. 6.
The panelists, who were professionals from a variety of industries including financial services, import/export, and manufacturing, outlined the potential benefits of blockchain as well as accompanying challenges.
One of the most commonly mentioned benefits of blockchain is increased cybersecurity in financial transactions. One panelist described blockchain as superior to cloud computing regarding trust and authentication. Blockchain also has the ability to remove middlemen, replace the escrow function of banks, make illiquid assets liquid due to the ease of authentication, and improve settlement time. However, there is a cap on the number of transactions that can be processed per minute on the blockchain. But despite this, it is estimated that by 2018, more than 80 percent of banks will have implemented something involving distributed ledgers. For small businesses, these benefits could mean easier access to capital as administrative hurdles are removed.
Beyond financial assets, blockchain can be used to register and track physical assets through the supply chain. Panelists emphasized utility of this in trade finance, and another noted that digitization of the supply chain is one of the most promising applications in the next 24 months. Food safety is another potential use case, as tracking the origin of foodborne illness would be easier. The use of blockchain to track land titles (especially those with multiple owners) is promising as well. In fact, Cook County, Ill., (home to Chicago) is conducting a pilot program on this.
Finally, blockchain can be used to track intellectual property and digital property. On Dec. 9, Segal attended a public meeting on “Developing the Digital Marketplace for copyrighted Works” held by the .S. Department of Commerce’s Internet Policy Task Force. Blockchain could be particularly important for small businesses in the arts and entertainment industry, as it could make it easier for them to collect royalties and payments. It appears that the hype around blockchain is at least partially justified, and that small businesses stand to reap many benefits from the development of this technology. However, as of late 2016, regulatory issues surrounding blockchain have not been addressed fully. For example, theft of nearly $80 million (USD) of cryptocurrency “Ethereum” was technically legal. One panelist noted that adopion of advanced technology will require future regulators to be techologists in addition to lawyers. As regulators address blockchain, it is important to keep the needs of small businesses in mind.