Blockchain has a ton of hype, in part due to its link to cryptocurrencies and the hype around them, which has resulted in investments in blockchain reaching an all-time high of more than $12 billion in 2018 and use cases for blockchain sprouting like weeds – so much so that blockchain made its first appearance on Lux’s 19 for 2019 report (available to Lux members only), catapulted in part by all this investment. While many companies are jumping on the blockchain bandwagon, few understand the true benefits of blockchain, where it should be used, or what type of blockchain implementation to adopt.
Blockchain is more than a digital innovation; it is a microeconomic tool that allows an organization to establish trust around information, physical objects, people, and money. In the recent Lux report “Trust and Efficiency: Finding the Right Applications for Blockchain” (available to Lux members only), we developed a framework that clients can use to answer questions like when and where they should use blockchain and what architectural parameters they should consider while evaluating blockchain solutions.
To determine if it really needs blockchain, an organization should:
- Determine the level of trust in its network of stakeholders
- Carefully measure the cost of loss of trust
- See if traditional approaches to establishing trust in the network, such as legal contracts and middlemen, are falling short
- Perform a cost-benefit analysis by evaluating the cost of implementing and operating blockchain and comparing it against the cost of loss of trust
While there are nearly a dozen different operating parameters associated with blockchain implementation, an organization needs to worry only about four major architectural parameters, which determine the other operating parameters; these are blockchain type (permissioned vs. permissionless), the consensus algorithm, ability to execute smart contracts, and existence of underlying tokens and monetary policy.
A detailed analysis of the various use cases of blockchain within the context of the framework we developed indicates that nearly 50% of these use cases fail to meet the conditions that would point to the use of blockchain. Examples include Binkabi, which is using blockchain to enable international produce trades, and the Chilean National Energy Commission (CNE), which is using blockchain to store energy data to prevent tampering.
While blockchain is a very innovative technology, organizations should carefully evaluate their use case using the framework provided here before jumping headlong into implementing it.
- Recent Report: Trust and Efficiency: Finding the Right Applications for Blockchain (for Lux members only)
- View the Blockchain Tech Page (for Lux members only)
- Read the full 19 for 2019 report (for Lux members only)
- Download the Executive Summary of the 19 for 2019 report