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Whenever we talk about Blockchain, a lot of people think of cryptocurrency. While that is not wrong, it is only a small part of the puzzle. Cryptocurrency transactions are currently the most popular use of blockchain, but there is so much more that Blockchain can be used for.
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Blockchain has been around since 2009 and is one of the 25 trends in new technologies for the future. The simplest explanation is that Blockchain is a digital ledger or a database of transactions. When a transaction is initiated, it is uploaded into a new block, and linked to a previous block called ‘hash’, which is more or less a fingerprint for each block. Now each block does not only contain its information, but the hash of the previous block as well. This is why one of the promises of Blockchain is accountability – it is difficult to modify the information of the block without tampering with the hash, and rendering the rest of the chain invalid. These digital blocks of transaction are connected in a chain – blockchain – and so offer security, public accessibility, and transparency.
Despite what you might think, Blockchain applies to more than cryptocurrency. It has vast potential for businesses of all sizes, including the small scale. Imagine that you, as a small business owner based in Nigeria, get a long-term customer somewhere in Europe. One of your first concerns will be how to get an efficient cross-border platform for receiving payments, without crazy charges. And just in case you have not figured this out before, accepting payments in digital currencies can solve this problem. With a stablecoin account, for instance, that payment can be received in your digital wallet and subsequently settled into your naira account, and you don’t have to worry about the high foreign exchange fees from traditional money transfer services.
As a decentralized and secure method of recording transactions, blockchain has the potential to revolutionize how businesses operate, beyond even financial transactions. This decentralized system ensures that once data is added to the blockchain, it cannot be altered or deleted without the consensus of the network participants, and this is added security for business.
A blockchain may be fully decentralized and accessible to all, particularly decentralized or even centralized within and only accessible within an organization. Each type/model serves a different purpose and works with different governance frameworks.
All transactions are visible to participants in the network, enhancing trust. Cryptographic techniques make it difficult for unauthorized users to tamper with data. Importantly too, no single entity controls the entire blockchain, reducing the risk of a single point of failure. Businesses can use Blockchain to manage their supply chain, and other business operations as well. Some of the advantages it offers include:
- Improved Efficiency: Blockchain can streamline processes by eliminating the need for intermediaries. For example, in supply chain management, smart contracts can automatically execute transactions when predefined conditions are met, reducing delays and administrative costs.
- Cost Effective: By automating transactions and reducing reliance on third parties, small businesses can lower operational costs. This is particularly beneficial for startups that may have limited budgets.
- Enhanced Security: The inherent security features of blockchain can help protect sensitive business information. For small businesses, this means reduced risks of fraud and data breaches.
- Access to New Markets: Blockchain can facilitate peer-to-peer transactions, opening new revenue streams. Like the example mentioned earlier, businesses that accept cryptocurrencies as payment can potentially attract a broader customer base.
SMEs account for almost 90% of businesses globally and provide 50% of all jobs. Within the formal sector, they can account for up to 40% of national income while creating 7 out of 10 jobs. So, we must consciously concern ourselves with how they navigate and survive their early years, and thrive. Blockchain technology, however, can help SMEs build, grow, and adapt to many of the challenges they face with automation and finances. Applied the right way, it can impact operations and growth for SMEs.
Even though businesses can apply blockchain to daily processes, the difficulty and duration of implementation vary and can sometimes discourage the implementation altogether. A more sophisticated implementation can require a customizable, predesigned blockchain, or designing one from scratch. There are some predesigned blockchains offered by Amazon Web Services (AWS), Microsoft’s Azure, and Oracle, which businesses can modify to fit their needs. Developing one from scratch can run into months, and cost much more depending on the Blockchain development company you use. If you do decide to buy the predesigned or have yours developed from scratch, here are some things to consider.
1. Implementation Costs: Small businesses may face significant upfront costs related to infrastructure, training, and ongoing maintenance, which can make it overall expensive.
2. Complexity and Learning Curve: Understanding and effectively using blockchain can be daunting, and if you are making the transition, you need to invest time and resources in education to keep up with this rapidly evolving technology.
3. Regulatory Uncertainty: As blockchain technology continues to develop, regulations are still catching up, so you may face some uncertainty regarding compliance with legal frameworks.
4. Market Volatility: If a small business decides to accept cryptocurrencies, they may expose themselves to price fluctuations particularly if they use volatile options. This is why stablecoins and digital currencies may be a preferred option.
5. Security Concerns: Small businesses need to ensure they follow best practices to protect their blockchain applications.
As the technology matures, small businesses that stay informed and adaptable will be better positioned to leverage blockchain effectively while understanding its complexities.
