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HBR: Blockchain is Foundational, not Disruptive, Technology

Reading Time: 4 minutes by on January 2, 2017 Bitcoin, Business, Commentary, News

The Harvard Business Review included a piece on the blockchain in their latest journal expressing their doubts about the hype. Instead of being a disruptive technology, the blockchain is a foundational one.

Bitcoin and other single-use cases are gaining adoption but major shifts in the economy are decades away. The article also offers advice for executives on how to get ahead with applying and adapting to these new economic and social foundations.

Blockchain brings to life a world where contracts can be put in place, through a digital code and where data is shared and stored in a transparent network. The blockchain facilities a network that is immutable and secured from deletion and tampering. Therefore with the blockchain, every agreement, process, task and payment made in the economy would be recorded digitally.

This marked digital signature will be traceable, verifiable, stored and ultimately shared in the public domain. The huge potential of blockchain will lead to the cooperation between individuals, firms and machines and algorithms to run smoothly as transactions would take place with little contact between agents.

Such is the effectiveness of blockchain technology, it will challenge occupational roles like bankers, brokers, and lawyers which may no longer be needed in the longer term.   

Transformational Use Cases Face Many Barriers

The Harvard Business Review (HBR) recognizes that blockchain will revolutionize businesses and economies. However, they are concerned about the hype since many barriers such as technological, governance, organizational and societal would need to fall. In their blockchain article, they explained the transformation of businesses and government led by blockchain is decades away. This is attributed to the fact that that blockchain is not a “disruptive” technology that will threaten current firms but instead a foundational one.

“Blockchain has the prospects to create new foundations for both our economic and social structures.”

The HBR article draws parallels between TCP/IP and the blockchain. For example, the TCP/IP introduced an open, shared public network without any central authority that is responsible for its maintenance and improvements. The first single use case of the TCP/IP was in 1972. By the late 1980s, the protocol emerged within a growing number of firms to create localized private networks and then by the mid-1990s this lead to the arrival of the World Wide Web, bringing TCP/IP into broad public use.

After gaining critical mass, new emerging companies took advantage of creating their businesses using the internet, such as Amazon, CNET, and Expedia.

To move through the phases such as single use, localized use, substitution, and transformation that results in reshaping the economy, it took TCP/IP more than 30 years. Blockchain’s first single use case emerged in 2008 with bitcoin and thus we can deduce that we are projected to reach wide-scale adoption by 2038. The graphic below shows progression towards the transformation of the economy comparing the foundational technologies TCP/IP and the blockchain.

While single-use and localized use cases of blockchain technology are gaining traction, substitution and transformation cases are still far off. One example of substitutes includes cryptocurrencies, which are new fully formed currency systems that have involved from simple bitcoin payments. Stellar is one of the most ambitious substitute of blockchain application at present. Their objective is to make financial services affordable and accessible to those that have never been able to access them before, offering banking, micropayments, and remittances.

Not only do they offer their own cryptocurrency lumens and also permit other assets on their blockchain, such as other currencies, telephone minutes and data credits. While Stellar has proved it has cost effectiveness and viability to become a banking standard, the ecosystem coordination barriers stand tall. It could take years of effort to persuade the government policy, central banks and large organizations for the adoption of blockchain technology.  

The most transformative blockchain application currently is “smart contracts,” which have the potential to change economic, social, and political systems. However, we are decades away from the widespread adoption of smart contracts whereby a remarkable degree of organization and transparency on how smart contracts are designed, verified, used, and prescribed.

How Executives Can Prepare for the Blockchain Revolution

One way executives can incorporate blockchain technology is by adding bitcoin as a payment option. This adoption will force various functions including IT, finance, accounting, sales, and marketing, to build blockchain capabilities.

A second low-risk strategy is to use “blockchain internally as a data for applications like managing physical and digital assets, recording internal transaction and verifying identities.” By exploring single use applications organisations will engage in a process of learning by doing, which is has been made easier with cloud-based blockchain services from large platform spaces like Amazon and Microsoft.

One way to develop substitute applications is by focusing on replacements that will not need end users to alter their behavior much but offer cheaper alternatives. A good example of this is First Data’s journey into blockchain based gift cards which lowers cost per transaction and improves security.    

The article identifies two transformative scenarios that could have significant influence; firstly large scale public identity systems such as passport control. Secondly, algorithm-driven decision-making in the prevention of money laundering and in complex, multi-party financial transactions.

By providing a framework executives are able to plan out how to begin building their structural capabilities for blockchain today. They will require to train their staff and teach them about blockchain and create firm-specific application across the quadrants identified by the HBR and to invest in blockchain infrastructure.

The article concludes that it is not a matter of if blockchain technology will affect your business, but when:

“No matter what the context, there’s a strong possibility that blockchain will affect your business. The very big question is when.”


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