Blockchain: pros and cons

As a management consultant at IT company Macaw, Matthijs Emsbroek helps companies with innovation and digitalisation. "Blockchain makes the most difference in processes where a so-called value transaction takes place, “says Emsbroek. “This might be a financial transaction, or a transaction involving goods or services. With these types of transactions, there is always a risk or error or fraud. Blockchain makes risks transparent and can prevent risk.”

What is blockchain?

A blockchain is a system in which data is stored in what are known as ‘blocks’. Unlike other systems, the blockchain database is not managed by one central entity, but rather by all the parties involved in the chain. All users who are part of the chain post bits of data on a block. This could be, for example, a list of transactions, or a collection of important documents such as contracts or proofs of ownership. This makes it clear who is responsible for what part of the chain. If anything goes wrong in the chain, for example during a delivery or production process, you can instantly see how to avoid this error the next time.

Pros of blockchain

For companies with a complex supply chain or production chain, blockchain offers a number of advantages:

Reducing risk

If you are a supplier of design products and would you like to check the authenticity of a product? Have every stakeholder in the production process to complete a block. Ask each party to provide evidence of their work, for example in the form of a digital certificate or a proof of origin of the product. By recording this in the blockchain database, you reduce the risk of imitation or forgery.

Detecting errors

Blockchain makes it easier to detect errors in the chain, as each stage of the process is recorded in a block. Emsbroek cites the chain of deposit bottle crates as an example: company A manufactures these crates. Company B transports the crates to Company C. Company C uses the crates for storing bottles of lemonade. If a number of crates were to fall off the lorry during transit, Company C will only notice this when filling the crates. At the end of the chain, Company C has two problems on its hands in this case: they paid money for crates which have not been delivered ànd they are stuck with a surplus of lemonade they were unable to store.

Blockchain has changed this entire process. In the production of the crates, Company A assigns a digital code to each crate, similar to a QR code. This records each crate digitally in the blockchain database. A, B, and C all three have access to this database. In addition, each crate is assigned a sensor connected to the internet. This sensor reports the location of each crate to the database.

If a crate falls off the lorry, this will be indicated in the database. What happens next depends on how the system is set up. This means the crates can be automatically charged to, for example, the transport company or the supplier. Then Company C does not need to pay for the missing crates. Alternatively, a notification might be sent to Company C’s production system that the number of bottles of lemonade must be reduced.

The biggest advantage here is that blockchain makes the entire process transparent for all parties and immediately reports any errors. This saves everybody time and costs.

Cons of blockchain

Blockchain also has a number of disadvantages. Emsbroek: “You can only use blockchain once the full process of value transactions has been developed and established. This is both time-consuming and expensive.” So, you should take into account the following:

The law does not always permit blockchain

First, check that blockchain is permitted. Emsbroek: “Whenever we start blockchain, we always hire the services of a legal expert. Because no matter how effective a solution might be, if the law does not permit it, all the work is for nothing.” Emsbroek uses the dispatch of containers at sea as an example. “That is a good business case, as errors and fraud are a major problem in ports. Still, blockchain is not feasible here, as blockchain is fully digital and Dutch law requires a printed Bill of Lading.”

Cooperating with third parties

All parties involved in the chain must want to cooperate. “Only very large companies can use blockchain to improve internal processes. So, you will likely always need to work with other businesses. If one of the parties involved in the example with the crates is not cooperative, the added value of blockchain is significantly smaller.”

Time-consuming process

To improve any process through blockchain, you must develop every stage of the process. This is very time-consuming. "After all, you need to understand not only how the process works now, but also how it should work in the future."

Extensive testing before you implement the plan is essential. This will tell you if the concept delivers on its expectations. If anything goes wrong, you will still be able to rectify it.

Specialist knowledge

Although you can use existing platforms such as Ethereum or Blockstream as a basis, you require specialist knowledge to get started. As this knowledge is currently not widely available, there are a limited number of programmers and companies that can help you.

Emsbroek concludes: “While I can certainly think of situations where blockchain makes a difference, there are also a lot of obstacles to get started. The entire process requires a substantial investment in time and money. This means blockchain is not worth it for everyone in all situations.”

If you have any questions about blockchain or bitcoin, ask one of our advisers by calling 088 585 22 22.