Though it was initially designed to monitor and verify financial transactions, blockchain technology has a wide range of applications, from supply chain management to corporate compliance. As more large ERP providers launch blockchain-based solutions with the promise to revolutionize business processes, many organizations are left wondering whether they should consider implementing blockchain technology or if “blockchain” is simply the latest buzzword.
Here, we address a few of the most common questions CIOs and enterprise executives have regarding blockchain.
What is blockchain?
First, let’s take a step back and look at the technology itself. Originally invented in 2008 to support the cryptocurrency, Bitcoin, blockchain is a type of distributed ledger technology that was designed to solve the problem of “Double-Spending” in electronic cash transactions by monitoring and verifying each Bitcoin transaction through a decentralized network using an algorithm to verify that each transaction is unique without the need for a third-party.
To better understand Blockchain technology, picture a highly secure, immutable, and verified Google spreadsheet simultaneously hosted on a decentralized network of millions of computers rather than on a centralized server. Now imagine that this decentralized network of computers is regularly updating this spreadsheet with new entries that are confirmed and encrypted based on a validation algorithm.
In this example, the spreadsheet is a “distributed ledger,” the validated entries are referred to as “blocks” and the process of cryptographically adding chains of verified “blocks” to the ledger refers to the blockchain technology.
What are some current enterprise-grade blockchain offerings?
- Amazon Web Service’s Blockchain Templates, available for Ethereum or Hyperledger Fabric can be deployed on Amazon ECS or an Amazon EC2 instance.
- SAP Cloud Platform Blockchain service, a Blockchain-as-a-Service (BaaS) that is part of SAP Leonardo and can integrate into other SAP landscapes.
- Oracle’s Blockchain Cloud Service, a Platform-as-a-Service (PaaS) offering in the Oracle Public Cloud and will become available on-premise as part of the Oracle “Cloud at Customer” offering.
- Microsoft’s Azure Blockchain Workbench, a set of Blockchain tools for Azure that is available for Corda, Ethereum, or Hyperledger Fabric.
- IBM Blockchain Platform runs on the IBM Cloud and was one of the first enterprise-grade blockchain solutions available.
What benefits could enterprises gain by adopting blockchain solutions?
Vendors often advertise that blockchain technology:
- Enables a trusted network for B2B transactions for the exchange of digital and physical goods
- Avoids cost and risks associated with third-party intermediaries
- Significantly reduces human errors in data exchange and processes across enterprise boundaries
- Avoids the cost and delays of offline reconciliations
- Reduces cross-ERP discrepancies resulting in settlement risk and poor records
- Decreases the cost and high risk of fraud in cross-company transactions
- Improves real-time information visibility within a trading ecosystem
While there is a lot of marketing hype surrounding blockchain, it is crucial to understand what blockchain is capable of today and remember that instances of real-world use cases are limited. In fact, only 1 percent of CIOs indicated any kind of blockchain adoption or investment in a recent survey. Until there are successful, real-world applications, it will be difficult to evaluate the efficacy of these solutions.
What are the key challenges of adopting blockchain-based ERP systems?
Before deploying any type of blockchain-enabled technologies, CIOs must consider many challenges such as:
The Limitations and Risks of Early-stage Technology
Enterprise-grade blockchain technology is still in its infancy and immature technology poses potentially significant risks. Additionally, existing blockchain platforms cannot sufficiently handle vast numbers of transactions or meet the current standards of high capacity workload requirements so they are not fully ready for enterprise applications.
The integration of blockchain solutions with existing ERP systems and platforms is still in development and represents a significant obstacle for enterprises looking to deploy distributed ledgers.
Some vendors attempt to address this concern. For example, Oracle claims that by using integration accelerators, they can enable existing enterprise processes in ERP to easily integrate and connect with blockchain transactions. However, we should reiterate that not enough organizations have implemented blockchain solutions to confirm these claims of smooth connectivity with existing ERP systems.
Lack of Experienced Resources
As with any budding technology, the pool of talent with blockchain expertise is limited and training will require significant time, effort, and costs. This means that the cost of implementing a large scale blockchain ERP system will likely be significantly higher than non-blockchain-based systems for both on-premise and cloud implementations.
Is blockchain here to stay?
The fact that the major IT vendors are investing millions into developing Distributed Ledger Technologies (DLTs) like blockchain is a sign that they believe in the technology and don’t expect it to go anywhere. However, as with any nascent technology, there will be significant deployment challenges and it will likely be years before we see widespread adoption.