Just like any other technology, Blockchain comes with its own set of risks and benefits that a beginner, as well as an expert, should be aware of. Let’s check out the most common blockchain adoption risks and benefits.
The adoption of new technologies in an organization comes with implications related to the context of the concerned technology. The management of material functionalities with the new technology depends considerably on the prior experience of people in using similar technologies. However, blockchain is a completely new technology without any particular references from the past.
Therefore, enterprises have to be aware of blockchain adoption risks in order to strike the perfect balance with blockchain technology. On the other hand, blockchain has moved beyond ten years since its inception as a foundation for Bitcoin for facilitating and recording Bitcoin transactions. Furthermore, blockchain has served as the ideal technology for creating a digital distributed ledger with records stored in blocks. In addition, the linking of blocks cryptographically with each other makes them practically invulnerable to modifications.
Therefore, blockchain adoption benefits have also prompted the large-scale applications of blockchain technology across different sectors, including manufacturing, trade, property, finance and consumer goods, and retail. So, it is reasonable to adopt blockchain technology? The following discussion aims to find out the benefits and risks of blockchain adoption and the possible approaches for blockchain adoption. In addition, the discussion would also reflect on the factors that can support a productive blockchain initiative.
Existing State of Blockchain Blockchain Market
Before reflecting on the potential blockchain adoption risks and benefits, it is important to note the existing state of blockchain adoption. The blockchain market experienced a radical growth to $340 million in 2017 from $210 million in 2016. Although a bit outdated, the numbers about the growth of the blockchain market clearly reflect its popularity.
After starting off in the form of a public transaction ledger for Bitcoin, blockchain has emerged as a promising instrument for applications across various industry verticals with a continuously increasing growth curve. Blockchain adoption benefits are primarily emerging due to their identity as a distributed digital network.
As a result, it can help in supporting data exchange, inter-party contracts, and financial transactions across different sectors, including healthcare, insurance, education, law, manufacturing, security, and others. Most recently, the size of the global blockchain market escalated from $885.4 million in 2019 to $1430 million USD in 2020.
Blockchain is future, the global blockchain market is expected to reach a total value of almost $2312.5 million USD in 2021. In addition, the business value created by blockchain would increase to around $176 billion USD by 2025 and almost $3.1 trillion USD by 2030. According to Cambridge Centre for Alternative Finance, banking and finance organizations take the lion’s share among sectors using blockchain presently.
At 30%, banking and finance sector have government and public goods sector at 13% and insurance at 12%. With such exceptional predictions regarding the growth of blockchain technology, it is reasonable to find opportunities for blockchain adoption.
Also Check:Blockchain Predictions for 2021
Potential Benefits with Blockchain Adoption
Now that you know that blockchain is popular and slowly gaining the attention of enterprises all over the world let us look at blockchain adoption benefits. Enterprises could avail the following benefits by adopting blockchain in their business operations.
- Blockchain can remove the need for a third-party or intermediaries, thereby reducing the counterparty risks. As a result, it can result in considerably lower costs for business transactions.
- Blockchain adoption benefits also shed light on the need for innovation. Adopting blockchain can showcase the propensity of a business for establishing a reputation as an industry innovator. Businesses adopting blockchain can also impress the customers and business partners on the grounds of their stance on innovation.
- Blockchain allows all parties to verify the records of their transaction partners without the need for intermediaries. With the help of peer-to-peer transmission, blockchain ensures direct communication between peers rather than including a central computer or server. As a result, users can have comprehensive control over the transactions and data flow, thereby leading to faster transactions.
- Another potential entry among blockchain adoption benefits refers to improved levels of data security. The continuously escalating threats of cyber attacks present formidable challenges for enterprises, financial organizations, and law and government agencies. Blockchain offers the advantage of improved security in comparison to conventional payments. Every party in the blockchain community could access the whole database and the complete history of transactions. Blockchain also implies that a specific party on blockchain could not have control over information or data on the blockchain. Since all the parties in a transaction can verify the transaction-related records directly, there are limited possibilities for fraudulent modifications.
- As discussed already, blockchain can offer better transparency due to its distributed ledger technology foundations. The transaction details on blockchain are available for all participants in the transaction. In addition, the privacy advantage in blockchain also supports the benefits of transparency.
- The most significant and explicitly evident entry among blockchain adoption benefits refers to competitive advantage. The use of blockchain technology shows the technical advantage of an enterprise for potential customers. Riding on a new technological trend is a prominent advantage for any enterprise to communicate value to customers.
Blockchain technology adoption brings several advantages to enterprises. Check out our previous blog on the benefits of blockchain to learn more.
Potential Risks with Blockchain Adoption
So, blockchain adoption is definitely a favorable proposition for all enterprises in the present times. However, failure in identifying blockchain adoption risks can be very dangerous for blockchain implementation. A proper understanding of risks with blockchain adoption could help businesses in fabricating the ideal blockchain implementation strategy. Blockchain technologies increase the vulnerability of institutions to different risks associated with them. Let us take a look at the various inherent risks in blockchain adoption.
- The first entry among blockchain adoption risks refers to strategic risk. Enterprises have to evaluate whether they want to take initiative in adoption or wait for maturity of blockchain technology. Businesses have to take both scenarios into account for evaluating the level of risks for a business strategy with each. In addition, the peer-to-peer nature of the technology could influence selection of networks for participation. Most important of all, the underlying platforms can influence limitations on services and products.
- The risks of business continuity are also prominently evident for blockchain adoption. The redundancy due to distributed nature of the technology presents better resilience in blockchain. Business processes on blockchain could result in technology and operational failures. Therefore, a strong business continuity plan and governance framework could reduce such unwanted risks.
- Reputational risk is also one of the prominent blockchain adoption risks arising due to blockchain being a part of core infrastructure. Blockchain must work efficiently with legacy infrastructure to avoid issues with regulations and poor client experience.
- Information security risk associated with blockchain is also one of the prominent factors you can take into account. Blockchain technology offers better transaction security. However, it does not offer a desirable account or wallet security. The distributed ledger and cryptographic precedents could ensure restrictions on corruption of data. On the other hand, the value stored in a particular account would remain vulnerable to account takeover.
- Another prominent mention among blockchain adoption risks refers to regulatory risks. The blockchain application landscape does not have any particular regulatory requirements and could also bear additional regulatory risks. Furthermore, different use cases, different participants, and permission for cross-border transactions could also create regulatory setbacks for blockchain adoption.
- The existing policies and procedures of a business must go through updates in the existing policies and procedures. In addition, technology concerns could also point towards scalability, interfacing with legacy systems, and speed in implementing blockchain.
- Blockchain adoption risks don’t have to emerge necessarily from the organization. The service-level agreements among participating nodes and network administrators and SLAs for service providers should be under constant monitoring for ensuring compliance. In addition, supplier risks could also present third-party risks due to sourcing technology from external vendors.
- In addition, it is also important to notice the risks of value transfer and smart contracts in deployment of blockchain solutions. However, blockchain adoption benefits should also be taken into account for a reasonable comparison. While many people can be overwhelmed by the extent of risks associated with blockchain adoption, the benefits can drive any enterprise to move beyond conventional expectations.
Have any doubts about the growth of your career in Blockchain? Check how Blockchain Job Market is booming.
What Type of Blockchain Adoption Should I Choose?
If you want to take the next big step after comparing blockchain adoption benefits and risks, then you must find out the types of blockchain implementations. The different types of blockchain implementation models can provide a clear impression of the ideal alternative for your requirements.
In the most general sense, you can find two common types of blockchains, such as private and public variants. On the other hand, you can also find other variants such as hybrid and consortium blockchains. Although the different blockchain models are different from each other, they have certain similarities among themselves.
For example, all blockchains include a cluster of nodes working on a P2P networking system. All nodes in the network have a copy of the shared ledger with timely updating functionalities. In addition, all the nodes could verify transactions and initiate or receive transactions alongside creating blocks. So, let us take a look at the differences between blockchain models before you explore blockchain adoption benefits.
Public blockchain serves as a permissionless distributed ledger system without any restrictions. Therefore, any individual with internet access could become a part of the blockchain network as a node. The most common examples of the application of public blockchain are evident in cryptocurrency exchanges and mining. Litecoin and Bitcoin blockchains are the most general public blockchains available presently.
Blockchain adoption benefits of privacy are evident with private blockchains that have a permission-based blockchain with restrictions. The organization controls security levels, permissions, accessibility, and authorizations in the private blockchain. The most common examples of private blockchain usage are evident in digital identity, voting, asset ownership, and supply chain management applications.
Read Now:Public vs Private Blockchain
Hybrid blockchain, as the name implies, delivers from both worlds of the public and private blockchain. It can leverage the features in each type of blockchain with a private permission-based system and public permission-less system. Hybrid networks can also users to control access to data on the blockchain. One of the most common examples of hybrid blockchain implementation refers to Dragonchain.
The final option for enterprises to leverage blockchain adoption benefits refers to consortium blockchain. Consortium blockchain could serve as a semi-decentralized type of blockchain involving management of blockchain network under more than one organization. In contrast to a private blockchain, a consortium blockchain leaves control in the hands of more than one organization. Generally, consortium blockchains are suitable for applications in government organizations or banks. The most notable example of consortium blockchain includes R3, Energy Web Foundation, and others.
Best Practices for Blockchain Adoption
A closer look at the implications associated with blockchain adoption, it is reasonable to look for the best practices to favor blockchain deployment. So, let us take a look at the best industry practices that can help you get the most of blockchain adoption benefits.
Security is Paramount
There is always a prominent misconception regarding the resilience of security with blockchain. In addition, security is one of the prominent blockchain adoption risks. Therefore, enterprises must have a clear impression of the fact that security needs evolve every single day, and they have to prepare for the changes.
Storage Doesn’t Come for Free
Blockchain should not be used for storing large files as it sends files to every node on the blockchain network. As a result, you can find considerably higher costs of storage and computing with large files. Therefore, it is important to store large files without paying additional costs for storage, transfer, or replication of multiple copies of the same file.
Governance Holds It Together
If you want to gain a promising advantage in blockchain adoption benefits, then you must take a proactive stand on governance. With proper enterprise guidelines in place, it will be easier to leverage blockchain functionalities without missing out on any links. In addition, governance procedures can also handle specific scenarios while managing the dynamics of the user groups.
Also Check:World Economic Forum Jobs Report
On a final note, you can clearly evaluate the blockchain adoption risks and benefits. The risks of adopting new technology are quite imperative, and blockchain presents many inherent risks. Resource consumption, security, and operational risks continue to plague blockchain, which is comparatively new. On the other hand, it is also important to notice the dominance of blockchain adoption benefits.
All you have to do is find the right balance and take note of the best industry practices. By following the industry norms, you can find out the ideal approaches for balancing the positives and negatives with blockchain technology. Get started with the Free Blockchain course and try to explore more opportunities for blockchain adoption right now!