Skip to content

Are You Willing To Deal With The Implications Of Blockchain?

Blockchain promises many technical benefits to organizations, such as shorter transaction times for complex multiparty processes, and immutability of data. These, in turn, promise business benefits such as reduced market friction and disintermediation of entire categories of industry middlemen. However, each of these benefits bears an implication that organizations may not have considered initially.

There are always multiple ways to solve a business problem; blockchain may or may not be the best solution for your organization. As a result, consider if your organization has the risk tolerance, skillset, and organizational will to address the implication of each promised blockchain benefit.

Any of these implications may be enough for an organization to decide against a particular blockchain use case. And certainly the more implications that an organization can’t or doesn’t want to address, the less likely blockchain is viable in the organization as a solution.

For definitions of terms in this table, see our Blockchain Glossary.

Blockchain’s Technical Promise

Business Reward of the Promise

Implications / What You’d Have to Confront (Risks)

Would Your Org Accept the Implications / Risks of Blockchain’s Promised Benefits?

Faster transactions Blockchain computing isn’t inherently fast compared to traditional systems, but a combination of its other promises (immutable data, trusted peer-to-peer transactions, 100% availability) allows complex transactions across many parties to happen faster than they typically do today. For example, many banks are interested in blockchain for cross-border payments because transaction times can be reduced from weeks to days. As a result, the business reward is reduced market friction—transactions happen faster, more transactions happen, and the friction of conducting business gets reduced. It’s possible your organization benefits from transaction lag time or collecting intermediary fees. Considering the cross-border payments example, many players make money off the float between transaction creation and settlement. That float disappears in blockchain environments because settlement is much faster. Is your organization willing to accept that shorter transaction times might negatively affect other aspects of your business process, for example by producing an increased pressure to respond to errors and other problems in the transaction? Do you have a plan to mitigate the negative consequences of shorter transaction times?
Peer-to-peer transactions that create trust in trustless environments Blockchain promises to create decentralized networks that allow peers to transact directly. By consensus, the “good” majority works to overcome the “bad actor” minority to ensure that transactions are true and valid. The business benefit of these trusted peer-to-peer transactions is the removal of intermediaries, leading to reduced costs and more efficient markets. For example, in a blockchain network that validates items throughout a supply chain, the total number of players will be able to overcome attempts by one or a few players that might try to approve fraudulent authentications. Removing intermediaries also removes a significant governance role that may not be directly replaced by consensus. Dispute resolution, peer identity validation, and other functions performed by intermediaries could fall through the cracks unless each transacting peer contributes significant additional effort. To address these concerns, such functions may have to be defined and allocated for management within the system itself (on-chain governance), or allocated to third parties that perform dispute management and other important functions (off-chain governance). And, of course, if an organization is an intermediary, then it must define a new role for this distinct environment. Is the organization willing to trust the consensus/majority rule instead of a current trusted third party for high-risk or high-value transactions? Is the organization prepared to either (1) establish network-based governance functions to replace the governance role played by intermediary parties or (2) take on some of those governance functions directly?
Immutable data One of blockchain’s core foundational principles is that data never get deleted or modified. For example, to “erase” a transaction from the blockchain, the initiating organization can perform a new transaction that counteracts the original, but the organization cannot simply delete the original transaction. In durable goods use cases like artwork and land that involve multiple owners over a long range of time, this immutable record of ownership transfer improves the ability to trace an item’s rightful ownership and avoids problems of fraudulent/stolen items. There are many questions and concerns about immutable data. For example, storing customer data on a blockchain could easily conflict with European regulations like GDPR and the right to be forgotten. And while there are ways to remove very old blocks from the chain for storage and compute improvements, there’s no way to segment the data on those blocks, so it’s an all-or-nothing proposition. There is also a risk of proprietary, dangerous, or illegally shared data being added to a blockchain, because the data can’t be removed once they are on the chain. Is the organization willing to work in an environment where there are not just storage costs, but also potential regulatory and legal issues that change over time about data usage and storage?
Better data security: tamper-proof transactions The consensus methods mentioned above also help make transactions tamper proof. The chances that a bad actor could simply take over enough compute power to approve fraudulent transactions (and thereby make the network think the transactions are valid) are minimal in blockchains with highly decentralized networks. For example, in a voting use case, a nation-state wanting to influence an election might try to create fraudulent votes by validating only votes for its favored candidate, but a system with enough nodes can overcome such attempts. If an organization has too few nodes in the network, if those nodes are controlled by too few different parties, or if the consensus allows a bad actor to take over sufficient hash power, then all of the security benefits get wiped out. This means that organizations have to design blockchains specifically to include sufficient diversity of node operators and number of nodes, as well as to ensure that the consensus protocol can’t be co-opted. This is why private organizations have trouble creating blockchains that scale. Is your organization capable of designing a tamper-proof network of nodes and miners, as well as spending more for more effective consensus protocols?
Better data security 2: hack-proof data stores Blockchain’s decentralized nature make it much harder to gain access to large amounts of data since the data reside in multiple places behind layers of encryption and hash functions. And if someone does attempt to hack the data in a block at one organization, the network of nodes will notice quickly as the hacked data (and related cryptographic hashes) will no longer match the data from the other nodes. This remains true as long as no one entity or set of collaborators takes over the majority of hash power in the network. (Quantum computing may change this, but that possibility is still years away.) Returning to the voting use case, once votes are coded into the blockchain, the chances of hacking or changing even one confirmed vote—let alone enough to sway an election—would be almost impossible. Many organizations get lulled into a false sense of safety—since data on the blockchain can’t be hacked, these organizations extrapolate that the overall system is unhackable. But blockchains are very hackable at points of integration with other systems and distributed applications that use the blockchain: for example, remember the cryptocurrency hacks in the news where money was stolen by hackers doing account takeovers, hacking into wallets and other points of access. Also, the transparency of data across the network could allow a malicious party to find trends in the data that could be exploited to their benefit. Is the organization ensuring the security of systems that connect to the blockchain? This involves strengthening the security applications and APIs, but also making plans to avoid node spoofing that would allow fraudulent transactions to look valid to the network. Does the organization have a mechanism to share data so that participants see only relevant data?
Timestamped, provable, and auditable transactions With timestamping and immutable data, being able to prove that transactions occurred and when will become simpler. This brings business benefits like eliminating double spend: spending the same funds twice due to lags in the system. In use cases like corporate finance, this increases data accuracy and also reduces the time and cost of compliance reporting for regulations like Sarbanes-Oxley. A company must be willing to accede to this provable visibility. For example, if a company finds through its supply chain transaction record that it has problems with suppliers, the company must address those challenges. Companies may not have the resources and discipline to resolve all the problems that become visible. Is the organization capable of addressing challenges that are raised by such a clear, inarguable record of transactions?
100% availability With multiple organizations cooperating in a network model, blockchains offer 100% availability. Even if one organization’s node is inoperable temporarily, once it comes back online it can sync with the rest of the nodes to get an up-to-date copy of the data. Consider a situation where a company is the victim of a ransomware attack: rather than paying the attacker, the company can access its data by re-connecting to the other nodes to recover the lost data. The company must be willing to use varied server types and architectures to ensure multiple nodes can’t be taken down by the same exploit or other error (such as downtime at a cloud vendor.) This means that a company may have to buy computers outside of favorable procurement contracts with favored vendors. Also, organizations will need to hire additional skills to manage technologies that not widely used in the organization. Is the organization willing to give up some amount of IT cost effectiveness and operating efficiency to create new blockchain-optimized IT infrastructure? Are other network participants willing to share this cost?