The promise of blockchain for Consumer and Industrial Products companies

Yes, blockchain is hype …

Blockchain is a young, technically immature database technology that holds a promise to create USD 3.1 trillion in business value by 2030. This promise has led to even more hype than in the wider field of digitalisation. In 2018 up to now (July), start-ups have raised USD 18bn alone through Initial Coin Offerings (ICOs). This is the first generation of start-ups that has to worry more about what to do with all the money raised rather than to struggle for investment funding.

On the flip side, huge investments have gone into start-ups that turned out to be scams or had unmotivated management: Around 900 failed coins (cryptocurrencies) are listed at the timing of writing. In general, as you would expect, some start-ups will succeed and many will fail. However, as we have seen in the past with other technological innovations in their infancy (such as the computer, the Internet, and mobile phones), we probably have only a very faint idea today of the full future potential of blockchain technology. This is provided that blockchain overcomes its technical challenges such as scalability. Currently only a very limited number of transactions per minute can be run and energy consumption is very high. However, 84% of the respondents to Deloitte’s 2018 global blockchain survey expect scalability to be achievable.

...but also much more

Many start-ups will fail because they consciously or unconsciously lose sight of what blockchain is really about and what it is not. Blockchain is a distributed ledger where data is authenticated and stored decentrally, thus creating transparent, immutable and trusted data. This has huge potential business value for two fundamental reasons:

Consumer and industrial products companies must step up

Despite all the articles and studies that have been published, many consumer and industrial products companies know more about cryptocurrencies such as bitcoin than they do about the underlying blockchain technology, and they see blockchain as something mainly for the financial services industry.

In reality, there are many areas where blockchain promises to create direct value for consumer and industrial products companies:

Blockchain technology is still immature and it will be some years before the full impact kicks in. Its business value is estimated ‘only’ at USD 176 billion by 2025, compared to USD 3.1 trillion by 2030. However, given the exponential rate of growth in most successful technology developments, it will be too late to join the party once the full benefits have started to roll in.

Consumer and industrial products companies should start with trial blockchain projects now

To identify a trial project we suggest the following approach:

1. Identify potential blockchain use cases

Think about your company:

  • Are there costly intermediaries involved in your business that you would like to eliminate?
  • Are there ideas for new business opportunities if only you had access to trusted data?
  • Are there processes that would benefit from de-centralisation?
  • Would blockchain allow you to do something that you have not been able to achieve before?
2. Prioritise your use cases

Once you have a list of potential use cases, you should segment them as follows:

The ‘trial project’ segment is an attractive place to begin, as trial projects are less complex to implement (i.e. less costly and less risky) than other use cases. Although their direct business value is lower, this does not take into consideration the qualitative learning aspect. The ‘explore’ segment also has low complexity, but there is more business value at stake in case the project fails, undertaken without sufficient relevant experience.

For a trial project to be successful at this stage, it should not be restricted by scalability constraints, and you should create an economic eco-system around the project and manage governance and regulation carefully.

The projects in the ‘plan’ segment offer high value but would also incur high risk. You should undertake them only at a time when your company is experienced with blockchain projects and possibly the technology has matured further. To be successful with these projects, it may also be necessary to join a consortium.

Demystification of some terms

ICO (Initial Coin Offering)
An ICO is a type of crowdfunding where investors invest fiat money to pre-finance a project.

Cryptocurrencies, most promimently of course Bitcoin, have been designed without central authority, as digital or virtual currencies for the transfer of funds, using cryptography as security against counterfeiting.

Coins are individual units of that cryptocurrency usable for payments. They can derive from Bitcoin or build on an own Blockchain.

Most commonly called “cryptocurrencies” or “coins” are in reality tokens the investors receive for their investing in the ICO.
This token has a special purpose, for instance participation in future profits or fractional ownership of an asset.
These tokens are therefore often comparable to shares and their (inner) value fluctuates in line with the expected value of the special purpose benefits.

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