To understand how blockchain is going to change the data of business and the business of data, ignore the jargon.
Ignore the hype.
Especially, ignore the confusion.
Fundamentally, Blockchain is an incredibly simple thing: a record book that everyone can see, and no one can change. This extremely simple idea has the potential to change huge swaths of enabling software and process for business, for finance, and for government, says Crowd Companies founder Jeremiah Owyang.
How blockchain works (used from the Business Models of Blockchain, by Jeremiah Owyang and Jaimy Szymanski.)
It's this very simplicity of blockchain that supplies the potential to change.
Why?
"Blockchain builds trust among parties that normally depend on third parties to verify transactions and ensure legal obligations are fulfilled," Owyang writes in a new report, The Business Models of Blockchain: Exploring Blockchain Use Cases Beyond Bitcoin And Financial Services. "Imagine being able to track shipments through your supply chain with ease, down to the individual package or even component level. Or, executing a contract with a vendor without the need for an intermediary auditor."
For those unfamiliar with blockchain technology, here's how it works:
Someone wants send money, ship a product, or sign a contract
They send notification of the action to everyone in the neighborhood (which can be global)
If the transaction is valid, everyone approves it
After approval the record is updated (in this case, a block is added to the blockchain)
The action happens, and, if it's a payment, the money changes hands
An unchangeable record remains of the transaction
This much, most people with even a small amount of familiarity with the technology already know. Using blockchain means that everyone has a reliable, public record of what any particular company or individual said they would do, and ... what they actually did.
In other words, blockchain enables trust through visibility.
That has huge implications.
Those implications include creating new types of contracts ... smart contracts, say Owyang and report co-writer Jaimy Szymanski.
A central record book versus a distributed record book (used with permission from The Business Models of Blockchain, by Jeremiah Owyang and Jaimy Szymanski.)
"'Smart contracts' stored on the blockchain track contract parties, terms, transfer of ownership, and delivery of goods or services without the need for legal intervention," Owyang and Szymanski told me via email. "Bills of ownership, titles, and notarized documents stored on the blockchain can also prevent forgery, fraudulent sales of merchandise, and illegal sourcing practices."
Contracts are one example, but business process is another.
Manufacturing companies spend millions to understand where components are, when they'll arrive, and that suppliers are shipping what they promised to ship.
Blockchain can replace all of that, Owyang says.
"By utilizing a blockchain, companies within a supply chain gain transparency into who is performing what actions, when, and in which location," he and Szymanski told me. "Once a supplier (or their products and shipping containers via IoT sensors and chips) inputs tracking data onto a blockchain ledger, it is immutable. This allows other suppliers in the chain to track shipments, deliveries, and progress among other suppliers where no inherent trust exists. It also increases efficiency and lowers costs as the need for middlemen auditors is eliminated once individual suppliers can easily perform their own checks-and-balances in near real-time."
Energy is another sector the report identifies as one that is ripe for disruption from blockchain.
Energy, of course, is in the very early stages of a massive transition from centralized production to distributed production. As more and more people and organizations adopt solar, wind and geothermal energy production, they'll have energy to use both for their own needs and, potentially, to sell into the power grid.
Blockchain could help recognize contributions while also balancing them against withdrawals.
Other industries ripe for blockchain penetration include food production, government records, retail, healthcare, insurance, and education, to name a few. In government, the country of Estonia is already leading the way. The government has enabled residents to "notarize" their marriages birth certificates, and business contracts with blockchain.
But shifting business models, changing processes, and adopting new software is not easy. There are some roadblocks on the pathway to blockchain adoption that Owyang and co-author Szymanski cover.
The report identifies six of them:
Blockchain verification is slow
Laws and regulations are even slower
There are few proofs of concept yet
Many are working on blockchain technology in secret, not sharing their results
There's no IBM of the industry yet, setting standards
The publicity of blockchain can be a problem for some
Those are real challenges. However, with more than $1.4 billion invested in the space in 2016 alone, and more this year, hundreds of startups and establish companies are working on solving those issues.
The next three to five years will reveal if they succeed.