In the fast-developing world of cryptocurrencies, blockchain and other types of Distributed Ledger Technologies (DLT’s) offer a digital way to record transactions made in the virtual world. This new concept of a blockchain is a permanent and decentralized system used to verify transactions without relying on a third-party value or authority. Instead of a centralized bank system that uses electronic money, blockchain functions as a public financial transaction database for digital currencies such as bitcoin. Without the need for a central database or administrator, there is a considerable demand from many businesses for this kind of tech tool. Through cutting out intermediaries, blockchain is meant to streamline business processes and enable them to take advantage of cryptocurrencies. Many investors were eager to explore this new technology and had high hopes for how cryptocurrencies and blockchain could revolutionize virtual transactions. The excitement created a considerable amount of hype surrounding blockchain and led to many companies investing millions in cryptocurrencies. However, not everyone believes the hype. The fear of losing investments coupled with concerns about security, still left doubts about whether blockchain and cryptocurrency technology is truly beneficial to all businesses. A lack of in depth understanding of the new technology also created confusion in potential adopters of blockchain. Without addressing these concerns, the hype surrounding DLT’s and cryptocurrencies could be misleading to businesses looking to invest. In order to cut through the hype and address concerns about adopting blockchain, the World Economic Forum (WEF) has introduced a tool that helps businesses discern whether or not blockchain and other DLT’s are viable solutions to pursue. Their decision model provides a series of eleven guided questions that offer a rationale based on a business’s unique resources and needs. WEF aims to prevent over investments or bad decisions by ensuring the tool is unbiased and provides a “balanced perspective” for evaluating blockchains. The decision model functions as a framework that also articulates to businesses which type, if any, blockchain is appropriate to use. There are three main types of DLT’s: permissionless, public systems; permissionless, private systems; or hybrid systems. Each type is useful for different kinds objectives and have different sets of requirements for use. In the full report, WEF outlines uses for private versus public ledgers and provides a table that organizes each type in relation to their level of decentralization and transaction speed. This toolkit was workshopped at the WEF Annual Meeting this year and was developed with input from a diverse variety of businesses that showed high interest in adopting blockchain. With their high level of interest in participating in this new technology, WEF decided to go beyond providing business with a reference tool for blockchains and provide a method for problem analysis to decide “whether blockchain might be useful for a particular problem,” without needing prior knowledge of blockchain technology. This approach helps clear up confusion on exactly how blockchain works and how it could meet their specific needs. Characteristics of businesses that demonstrate high potential use include a shared repository, multiple writers that record transactions, minimal trust, presence of intermediaries, and transaction dependencies. Businesses that have demonstrated interest in using blockchain include medical insurance, banks, and energy companies, but only few demonstrate a practical use for DLT’s. Medical insurance, for example, fails to meet the requirements that prove blockchains are appropriate for their business. Blockchain was proposed to allow medical insurance companies to keep track of patient medical claims, reduce costs, increase transparency and reduce trade. However, after going through the decision model, it is revealed that the medical industry’s heavy regulation and need for close oversight is not suited for blockchain’s lack of a third-party authority. On the other hand, a leading software company that uses graphics processing units (GPU’s) for customer projects would benefit from adopting blockchain. Using blockchain and a token-based system would provide an adequate solution for “the chronic GPU shortage and lack of economies of scale” and reduce overall costs for the company. By implementing a new decision model, WEF hopes to “mitigate the hype” surrounding blockchain technologies. This new framework will allow potential business investors to take a practical approach and reduce their overall risk when experimenting with new DLT’s and investing in blockchain.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.