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How will blockchain architecture change business models?

And what kind of volatility does this new technology bring with it for established players in the market?

This, along with other questions, is the subject of the seventh and final blog on “Enterprise 4.0”. As a completely new platform architecture, Blockchain is known principally through its use for cryptocurrencies. It was created originally for the most well-known of these: Bitcoin. However, if one looks at the facts beyond the hype around cryptocurrencies, then it becomes clear that Blockchain is not just about being a technical development, rather it is also about being an organizational development. It is a matter of being a possibly profound economic development as new business models are being created through a paradigm change. It is no longer centrally controlled systems that define a process, but de-centralized systems without a controlling instance.

This paradigm change can be illustrated using examples from everyday life. Today it is common practice to use the services of a bank if we want to make a bank transfer. We see it as just as normal that if we want to buy something second hand from someone online we do this via a platform such as EBay. This raises the question of why we don’t choose to take the direct path to people with whom we have a business relationship. It‘s about security and trust. In today’s world we can be fairly certain that when we make a bank transfer the transaction will be processed correctly; as opposed to sending cash by post in an envelope, which does not provide the same level of security. Should a bank transaction fail then we can make the bank liable for this. This is comparable with EBay where the platform is an intermediary that controls and evaluates the vendor and the buyer. These are centralized instances that give us the confidence that transactions will be executed reliably.

The question now is whether this can be controlled differently. This is the point at which blockchain architecture enters the ring. Here is where new avenues are being sought to integrate this decisive question of trust into the architecture itself, without a central instance. Primarily, this is about encryption techniques which ensure that uncorrupted and verifiable transactions can take place.

If this aspect can be covered by the corresponding technology then we have already shifted a part of the mechanism of trust away from a central instance and into the network. If we now anchor further elements of trust into the network, namely for example that multiple participants in the network must confirm transactions and a mechanism for consensus here offers the possibility of regulating this confirmation process with transaction security, then the mechanism of trust will be complete. The above is a rough outline of blockchain architecture functionality.

Crypto currencies being the first application scenario was an obvious choice as the financial crisis had led to a significant loss of trust in the banking system. An almost political, extremely critical attitude towards the financial system opened the way towards the acceptance of new methods. We can now see that other areas of application in other sectors are being sought. An interesting feature of blockchain, one that fires the imagination, is the fact that individual transactions are permanently captured and saved unchangeably. This could, for example, create an interesting application scenario for land registry offices! In logistics also, in which multiple partners are involved, new alternatives are evolving, perhaps via a private blockchain in which only you are connected; but reliably and entirely without an intermediary. You benefit from the principle that each participant possesses an unchangeable copy of all the common data.

The development of application systems based on block chain architecture has begun. Some companies have had a wake-up call, not least the banks who need to reflect on what they offer, or rather how attractive it is. Fundamentally, blockchain is stimulating a great deal of far reaching speculation about changes in market activity through de-centralization and therefore about other ways of handling data. Some can already see Armageddon waiting on the horizon for data hunters such as Amazon, booking.com or Facebook. But we need to be cautious. The internet was also developed from the viewpoint of de-centralization and democratization; at least this viewpoint belonged to the original idea. Today, the aforementioned and gigantic monopolists are the ones active in it. In this respect nobody really knows whether the social/political expectations placed on blockchain architecture – as attractive as they are – will, in hindsight, be fulfilled. Either way we are dealing with an interesting new approach that will give new impetus to the automation of business models.

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