Use it or Lose It?
Blockchain: the most valuable sequence in the world. What used to be the playground of a handful of crypto-nerds has turned into an acclaimed and successful technology in the course of the past years, with the potential to turn all of our (economic) lives upside down. Companies around the world focusing on this technology are wondering: will they be able to successfully put blockchain to use, and if so, how? Prof. Alfred Taudes, head of WU’s Research Institute for Cryptoeconomics and a long-standing lecturer at the WU Executive Academy, has analyzed where blockchain is particularly well suited, and how companies that are contemplating its use can act strategically. Read on for a checklist for practical implementation.
The days when the blockchain was only ever mentioned in the context of Bitcoin and other cryptocurrencies are long over: nowadays, it is used in a large variety of industries. “Especially during the past months, blockchain technology has rapidly evolved,” says Alfred Taudes, who is also the scientific head of the Austrian Blockchain Center, pointing to improvements in energy consumption and speed as utilization examples where the technology has made a real difference. But there are also new possibilities that stand out among cryptocurrencies, for example so-called stablecoins: cryptocurrencies that are pegged to traditional assets such as the US dollar. They build the foundation of “decentralized finance,” open protocols that offer an alternative to financial services such as loans based on the Ethereum blockchain.
In today’s modern and digitalized business world, blockchain technology provides a wealth of extraordinary opportunities for simplification, automation, and increased reliability. But how can companies assess whether the use of this technology will also pay off for their own business? Consult the following blockchain checklist by Alfred Taudes to find answers to the following questions: Which kinds of companies would really miss out by not using blockchain? For which industries is it particularly well-suited? How should companies go about using blockchain?
The first example that comes to mind is an obvious one: the world of finance. This industry is currently experiencing the emergence of completely new, blockchain-based providers, such as Bitpanda or Coinfinity. Banks are using the blockchain for something called “tokenization”: this process creates a digital representation of assets such as shares, real estate, or works of art. These assets can then be traded much faster and in smaller volumes based on a blockchain.
The second large area of application is production and supply chain management: here, the blockchain enables a notarization of production data, the tracking of goods along the value chain, and the unchangeable saving of digital twins. In actualizing the Physical Internet, the blockchain is absolutely essential. For this concept, the current company-specific logistics networks are replaced by a decentralized, cross-organizational, standards-based network which is organized in a similar way as the digital Internet.
In Austria, an e-government solution is currently developed based on a public blockchain. Its first concrete step will be to provide a digital public notary for everybody: it will make it possible to prove which contents a certain file contained at a specific point in time. This is already used in the creative and design sectors to document where ideas came from. The concept of a “self-sovereign identity” will be the pièce de résistance in this area. Every citizen will be able to manage his or her personal data in a digital file and share them with authorities and companies selectively. This will save time as it does away with the need to repeatedly enter information into various forms by hand as is currently necessary for data privacy reasons, for example when citizens request services from the state or answer compliance questions by financial institutions.
In the cultural sector, some interesting applications have been initiated, such as the Vienna “Kultur-Token”: using public transport is rewarded with tokens, which can then be exchanged for tickets to cultural institutions on a marketplace. Another example is the “CryptoWiener” project, where famous Viennese personalities such as Sigmund Freud can be bought as tokens. The idea of these pixel artworks is to show that there is a place for the blockchain also in the arts.
The coronavirus pandemic has uncovered how important it is to process health data in accordance with data privacy. This is another area where blockchain technology can be hugely beneficial. Blockchain-based encryption methods can, for instance, assist in evaluating encrypted health data which were collected at various locations without previously decrypting them and gathering them in a central place.
Also in the energy sector, the blockchain plays an important part as the foundation of peer-to-peer energy trading, where consumers can assume the role of energy providers (for instance with their own photovoltaics plants) and trade with energy. Blockchain technology is also essential in e-mobility, for example to securely charge vehicles using different infrastructures.
Wherever important values and sensitive data need to be exchanged with other companies and this is preferably not done through centralized pathways, the blockchain is the right choice of technology. It is a new, disruptive way of communicating.
Prof. Alfred Taudes
In the beginning, the Internet only consisted of e-mails, and look at it today. The blockchain can be used successfully in basically any sector, even if some industries, such as finance or energy, or the area of supply-chain management, are better set up to harness its potential than others.
The first step is to come up with an answer to this basic question: is the blockchain a suitable solution to your problem? A consultant’s advice can be helpful in answering this question. Just one example: Blockchain technology can be used to connect one company’s ERP system with that of a partner firm. What does not make sense is to simply replace an ERP system with a blockchain solution.
Create a proof of concept: in a second step, a simple prototype is created in order to test the specific application and how it would work in the field.
Check the legal requirements: companies need to be aware of the legal stipulations as non-compliance can bring the entire project to a halt. The Austrian Blockchain Center has legal experts who are specialized in this topic and happy to help.
“For a blockchain solution to work, you not only need to carry out a thorough analysis of the company’s (business) situation but also select a suitable business model,” says Taudes. Creating such a business model is both an interactive and, more than anything else, creative process. In the beginning, it is about sounding out the opportunities that blockchain technology offers. In a next step, it is crucial to look at your own company’s business models as well as analyze examples and best practices of your competitors or companies from other sectors: where is the blockchain already successfully used, and how can it provide a foundation for new ideas? As the use of blockchain technology is still fledgling, the sky is the limit. When it comes to simplifying and automating business processes, guaranteeing secure communication, and reducing possibilities for fraud, the blockchain will soon offer a multitude of possibilities.
How blockchain can be used and successfully integrated into the corporate strategy is part of the Professional MBA Digital Transformation and Data Science. For more information, please click here.