By Paweł Sobotkowski
The era of blockchain has just begun, as blockchain spending is steadily increasing every year, and it is forecasted to go from 4,1 billion U.S. dollars in 2020 to 17,9 billion U.S. dollars in 2024. With such an impressive change in numbers, companies all around the world hop on the blockchain train, hoping to use innovation to their advantage. The newly sparked interest in blockchain is so strong that 40% of companies plan to invest over 5 million US dollars in blockchain in the coming year. At the moment, top use cases for blockchain include data validation, identity protection, and data access and sharing.
Amidst the blockchain craze, it may be useful to take a step back and analyze whether blockchain can work wonders for every business. With its wide range of uses, innovative nature, and decentralized architecture, it is an attractive option for many companies, but one has to remember that it is not a miracle solution for every problem.
With the help of Marcin Rzetecki, we will explore the ins and outs of the blockchain validation process to better understand how blockchain solutions can serve our business purposes.
What are the most common risks connected to blockchain projects?
I took part in the conversations with clients at different stages of the project’s development, and I must say that there are various risks connected to blockchain projects, but the most basic one is probably the lack of understanding of the technology behind blockchain. We have to realize that our clients don’t have to have a technical understanding of blockchain, but they need to know their industry inside out and understand the problems they want to solve.
Blockchain-based solutions differ from traditional centralized IT applications, as blockchain is decentralized, which is one of the technology’s strongest points: once data is entered into blockchain systems, it cannot be changed. It takes problem-solving to a whole new level of abstraction. Additionally, we also have to choose between public and private blockchain systems, as it is the next step to take when we develop an app.
As blockchain consultants, our job is not only to explain how blockchain works but also how it can work to clients’ advantage, or, if its use brings no value to clients, we should show how it only increases costs and time spent on projects. That’s why it’s so extremely important to have an outlined plan for collaboration with our client to minimize the risk of failure or incorrectly chosen technology.
In which industries the use of blockchain technology typically gives the best results?
I can’t give you a simple answer, because we can implement blockchain in virtually any industry.
Of course, there are industries, where the number of projects using blockchain is higher, for example, finance, transportation and trade, but for some industries, blockchain isn’t just as extensive, yet still important, for example, optimization of documentation flow and business processes in big or giant companies, like Audit Tax and Consulting Services, which have branches all around the world.
How can you determine which type of blockchain would work best for a project?
In the last few years of my work with clients, I created my own method for blockchain project validation. It is called DRAW, as it comprises 4 distinct stages: Discover, Research, Analysis, and Workshop, which help us to gradually understand the clients, their industry, and problems to solve. It’s worth remembering that blockchain project validation is difficult and there are many questions, which have to be addressed.
In such collaborations, we have to understand the client’s business needs and different perspectives’ (CEO, CTO, CIO, etc.) and analyze the situation from the technological perspective, using our deep understanding of blockchain technology.
How costly can blockchain implementation be for a small company, and should small businesses consider blockchain for their purposes?
It’s a good question! It’s certain that implementing blockchain is advisable anywhere, where it solves a real problem that can’t be solved by any other technology. Everyone asks about costs at the very first meeting, and my answer’s always the same: what’s your budget for the project? Honestly, I often cannot say how much it’d cost; we have to go through at least 3 first stages of the DRAW method to correctly estimate the costs. At the stage of Discovery, we surely have to ask ourselves:
- If we don't implement the blockchain, what are the business risks?
- What value do stakeholders get from using blockchain?
- Do we need to ensure public trust between the stakeholders?
- Who will participate in the cost of blockchain technology?
At the discovery stage, we get to know our clients, their approach to technology, and their problems and reasons why these particular problems are the clients' priority. Based on the information we receive from our clients at every stage of the process, we can tailor every solution to the client’s individual needs. Since we know clients’ possibilities, needs, and costs linked to blockchain adaptation, we introduce blockchain where it is needed, and where it brings the client a lot of value and poses a little business risk.
What types of variables are taken into consideration when you validate a blockchain project?
The number of factors that are taken into account when validating a project is enormous. Starting from the technological aspect, e.g. performance, scalability, to financial aspects such as transaction costs on blockchain (public blockchain), and the cost of the entire infrastructure (private blockchain). Business variables such as business risk, the cost of the entire project, return on investment, or business objectives from the point of view of various stakeholders e.g.: CEO, CTO, CFO, etc. are also extremely important. I can’t say that all these factors play a role in every validated project.
There are many other important factors for determining blockchain’s usefulness: does it solve a real problem, do business processes allow for blockchain implementation in their immutable nature, and does such implementation significantly affect these processes? The value of blockchain implementation will be different for stakeholders, who maintain the technical infrastructure, and different for users, who use it. There are just as many factors here as many projects are out there. That’s why I use the DRAW method, since it allows me, step by step, to get to know the client, the industry, the problem, and the perspectives of the CEO, CTO, CFO, etc. For that very reason, there are many factors to consider, but it decreases the risk connected to technology selection and its subsequent implementation.
Would you say that blockchain is a low-risk or high-risk investment?
I’d say it actually depends on both the size of the client’s projects and ambitions. It is a consultant’s job to minimize the risk, so as consultants, we have to advise the client well and mitigate risk when necessary. Validation of blockchain projects is difficult since we have to combine three different roles: that of a business expert, a technical expert, and a blockchain specialist. A bad decision can be made at every stage of the process if there is any misunderstanding as to the client’s industry or problems to solve. In other words, the client has to be honest and share information generously. To answer your question, the more we, as blockchain consultants, find out about the client, the lower the risk.
What are the most common problems solved with the use of blockchain?
Thank you for the question, it often comes up in conversations! I’ll give a very simple answer. Blockchain can be used as a solution wherever we want to solve the problem which fails to be addressed by any other technology, or wherever we want to eliminate trust issues by eliminating the third party. It can be also implemented to optimize business processes within a larger group of companies that work together.
What is the most widespread misconception about blockchain?
Another good question! One of them is blockchain is the golden solution for every problem or that if we use blockchain, our start-up will have bigger hype. Perhaps it used to be the case, but not anymore. On the other side, we have to know that implementing blockchain, where it is not needed will bring more harm than value and the costs of implementation don’t necessarily have to be low.
Do you think blockchain has the same potential in most of the markets or is it embraced more in certain parts of the world?
I think that blockchain technology has more potential to be adapted in developing countries where traditional technology has not yet found widespread adoption. A good example would be regions, where citizens don’t have access to banks, and consequently payments for services, or money transfers between one another. In such countries, implementing P2P payments based on Blockchain, the way it is done by Stellar and Bancor, is faster and easier than in developing countries.
Is blockchain technology a suitable solution for an international company, which has to follow many regulations, but would like to unify its internal business processes?
Yes, definitely, it would be great to take some interest in blockchain. In my previous job, I was a blockchain consultant for international companies, and I consulted implementing private blockchain hyperledger fabric in international institutions for finances and accounting. We solved the problem of process optimization between branches all around the world, especially for document circulation, multilevel communication, and approvals.
In a world powered by blockchain, possibilities are springing up like mushrooms, but we have to remember that every business is different and while for some businesses, blockchain is a miracle solution, for others it may be a great waste of resources. With blockchain idea validation DRAW, developed by Marcin Rzetecki, we can decide if blockchain is our future, or perhaps if we should take a road less traveled by, and seek another technological solution to optimize our work processes and create greater business value. To use blockchain or not to use blockchain? That’s a question that you can answer after you analyzed what you need to move towards what you want! If you wonder how to validate your blockchain idea, wonder no more, and head to the article of Marcin Rzetecki on blockchain idea validation.