How does blockchain revolutionize the way business is done?

Rage Comment : Just like mobile phones and cloud technology, blockchain is ready to completely subvert the way business is done. When this technology appears, it is not the time to focus on your own business operation and think about how blockchain technology can make your business operation more efficient. What you should consider is that your business operation may no longer be suitable for development in this new world. Blockchain is the second generation of the Internet and has the potential to reform currency, business operations, government and society. Companies should recognize the new opportunities driven by blockchain, assess possible risks, and create competitive advantages.

Translation: Nicole

The road ahead for blockchain is still full of thorns, but blockchain technology is ready to reshape the way business is done. Are you ready?

Like cell phones and cloud technology, blockchain — first implemented in 2009 as bitcoin’s original source code — is poised to upend the way business is done. If blockchain lives up to its promise, it won’t just disrupt financial institutions.

Angus Champion de Crespigny

Angus Champion de Crespigny, EY Financial Services Blockchain and Distributed Infrastructure Strategy Leader, said:

“If you can move money, or move something of value, over the internet, just like you can move data, what else are you going to use the internet for? You can build trust in the digital world. How do you know for sure that something on the internet is the original version? Before blockchain technology, you couldn’t.”

He added:

“If you want to prove something happened in the digital world, there’s no safe place to do it. Once information is recorded on the blockchain, no matter what it is, for whatever purpose, it cannot be reversed. When this technology comes along, it’s not the time to focus on the way you run your business and how blockchain technology can make your business run more efficient. You should be considering that the way you run your business may no longer be suitable for this new world.”

Is blockchain a repeat of history?

In the early days of the Italian Renaissance, Italian merchants used Arabic numerals and a system of calculation that came from the East, which overturned the foundations of commerce. With the advent of modern double-entry bookkeeping, merchants can ensure the integrity of the financial values ​​recorded in their ledgers. Now this system has been applied to all kinds of business operations.

In a way, blockchain is a modern form of digital double-entry bookkeeping, but it is a fast-building. Don Tapscott and his son Alex Tapscott, authors of "Blockchain Revolution: How the Technology Underlying Bitcoin Is Changing Money, Business, and the World," said that blockchain is the second generation of the Internet, "with the potential to reform money, business, government, and society."

In the Time article, they describe blockchain as “the first built-in digital medium for peer-to-peer transactions. The rules established by its protocol — featuring globally distributed computing and strong encryption — ensure that transaction data from billions of devices can be integrated without the need for a trusted third party. Trust is hard-coded into the platform, which is why we call it the Trust Protocol, which acts as an account book, database, notary, and clearing house, all of which require consensus among the chain’s participants.”

Understanding blockchain

Essentially, a blockchain is a distributed database, or a "timestamp server," as the mysterious Bitcoin creator Satoshi Nakamoto called it in his Bitcoin proposal report. The blockchain consists of blocks of items, each of which is a timestamped grouping of legitimate individual transactions and a hash of the previous block, which connects the two blocks. Each new transaction must be verified by a distributed network of computers that form the blockchain before it can be added to the next block on the chain.

Champion de Crespigny explained:

“Consensus in a distributed system is determined by an entity that checks everyone’s work, providing a stamp of approval that indicates a transaction or activity has been allowed.”

Blockchain also makes use of ‘smart contracts’ technology, which is a piece of code that will only execute if certain conditions are met. Smart contract blockchains can allow activities to be automated, such as payments being made only when a task is completed, or partial payments being made when a certain stage is completed.

Audit and professional services firm EY believes that by providing a way to record transactions, it can automatically record trusted activities at digital network connection points. "Blockchain technology has the potential to simplify and accelerate business operations, improve network security, and reduce or eliminate the role of trusted intermediaries (or centralized institutions) in various industries."

Granted, there are challenges: technical challenges, lack of public awareness of bitcoin, tax and regulatory issues, not to mention the challenge of resisting disintermediating businesses. But Champion de Crespigny warns that a 'wait and see' strategy will keep your company in the same position as record executives figure out how to sell more CDs over the internet.

He said:

“The power of this kind of technological innovation is very powerful and will change the way business is done.”

EY cites as an early example a private blockchain that has been set up near New York City to help homeowners share rooftop solar power without using local utilities. Other pilots include IoT-connected washing machines that can order detergent when it’s running low, and autonomous farming sensors that control water flows in rural areas.

If these challenges can be overcome, Champion de Crespigny said blockchain adoption could be rapid and disruptive. For example, EY noted that if blockchain can prove to save costs and improve trust in financial transactions, we can expect financial services companies to abandon current transaction processing technologies and turn to blockchain technology. Existing vendors of software and services that are not ready to embrace blockchain now may be left in the dust. The ultimate result of disruption may be more meaningful.

Champion de Crespigny said:

“What’s interesting to me is this idea of ​​value becoming another form of data that can allow money or payments to move from one industry to another.”

Blockchain promises to be an excellent mechanism for distributing computer workloads, which can affect infrastructure as a service (IaaS) providers and other cloud service providers. Blockchain technology's verification mechanism can also rewrite the history of network security and provide a trust foundation for all machine-to-machine transactions on the Internet of Things.

Champion de Crespigny said:

“This is not an area where you can just throw all the problems at the technology. You need to clearly understand the concepts and the possible impact on the way business is done. You need to challenge the current business model and process. Is this because you have always done it this way, or is there a better way?”

Next steps for consumption-based pricing

Greg Cudahy, EY Global Telecommunications Media and Technology Leader, said that cloud technology has enabled many companies to start shifting from a unit-based pricing model to a consumption-based pricing model, and the Internet of Things is also trying to keep up with this trend. The addition of blockchain technology can further accelerate the shift.

Greg Cudahy

Cudahy said:

“Consumption-based pricing is undoubtedly a disruptor to the process of how business is done, and eventually even semiconductor companies will price not based on how much a chip costs, but based on how often a consumer uses the chip.”

At the same time, the technology has the potential to completely disrupt the way companies account and formulate regulatory compliance, reduce tax compliance costs, reduce or eliminate tax evasion, and make company information public, allowing more people to supervise.

Channing Flynn

Channing Flynn, EY Global Technology Regional Leader, said:

“Currently, the process of verifying the income received is followed by paying the appropriate taxes based on the income received. But blockchain technology can make this process real-time, transparent and open.”

Other potential application scenarios identified by EY are as follows:

①Embedded healthcare: This is a complete medical information ecosystem that can exist in the form of blockchain, connecting insurance companies, suppliers, and patients.

② Eliminate the possibility of digital rights being stolen. For example, music files can be recorded on a public chain, artists can publish music on a blockchain-based music ecosystem, control data and terms of use, and royalties can be distributed in real time through smart contracts.

③ New credit markets for low-cost assets. Ernst & Young notes that transaction costs set a lower limit on the use of collateral assets to protect loans. By taking away most of the fees from transactions, blockchain can make lending based on new low-value assets more practical.

④Performance pay. With the help of smart contracts, blockchain can automatically execute performance pay contracts. The days of getting pizza in 30 minutes or less and getting it free after that time have long gone, but blockchain can bring back such days and even implement floating calculations.

⑤ Government tax enforcement: In a world where digital transactions are recorded, illegal transactions are difficult to hide.

⑥ Cross-industry mashup. Blockchain can create a whole new world where cooperation between enterprises can be fluid. Ernst & Young calls it 'cross-industry mashup', which means an alliance between one or more parties, using assets or other functions of other participants to create a whole new business value without affecting the continued use of assets or concepts of other participants.

⑦Industry Internet of Things. Combining cross-industry mashups with the Internet of Things, EY believes that blockchain technology can help companies better utilize their high-value industry assets by connecting everything from shipping containers to MRI machines to construction equipment that enters the real-time digital market, allowing companies to sell and buy idle time.

Champion de Crespigny said:

“It’s time to think rationally about how to effectively disrupt yourself before others do. Companies should recognize new opportunities driven by blockchain, assess possible risks, and create competitive advantages.”