All over business news these days are headlines about the blockchain and cryptocurrency. The attention to the subject prompts a persistent question: can small businesses benefit from the blockchain?
The answer is yes. And, according to an article from the U.S. Chamber of Commerce, 2021 has become the year when “every business, no matter what size, needs to start paying attention” to the blockchain.
The blockchain — a database that can be added to (but never changed or deleted) and is stored in dispersed locations — was developed to serve as the ledger for Bitcoin, the best known cryptocurrency. And while blockchain technology is now put to uses beyond the scope of cryptocurrency, it is still widely used for cryptocurrency transactions.
The most obvious way that using the blockchain can impact small business is by enabling companies to accept payment via cryptocurrencies. There are, of course, initial obstacles to be overcome.
First of all, a business needs to make basic preparations before it can accept payment in formats other than regular (or so-called fiat) currency. A small business would typically enlist the aid of an online payment processor that handles cryptocurrency (and charges a small service fee).
There are some benefits to accepting cryptocurrency. It puts a company in direct contact with the consumer, bypassing the transaction fees of banks or credit card companies. If a customer needed a refund, it would be handled directly, avoiding problems with costly credit card chargebacks.
It can’t be denied that conducting business via cryptocurrency would carry some branding impact. To many consumers it could indicate a business is forward-looking and engaging with new technology. There are currently some major companies accepting Bitcoin, including Home Depot, Microsoft, and Whole Foods.
As the blockchain is a database that can’t be altered, it holds promise as an archival source. There are projections that companies will be able to reduce the money spent on cloud storage by converting records to the blockchain.
The blockchain is being used to maintain databases of digital assets. For instance, professional photographers use it to manage licensing rights and secure royalty payments. According to the storage company Iron Mountain, the blockchain’s advantages for business archives include lower costs, efficiency (transactions can occur quickly), and security (fewer people involved in a transaction). And NFTs, or non-fungible tokens — an implementation of blockchain technology used to create unique digital works — have sold at art auctions for extraordinary prices.
The blockchain can also be put to use by companies who wish to provide transparency to consumers. A recent Forbes article described the value of showing transparency by using the blockchain. A company involved in agriculture in South America wanted its consumers to understand how produce came from farm to table, and was able to provide the information via a blockchain.
A blockchain is a distributed database, which makes it a very difficult target for hackers. As the data can be sliced and dispersed to many different servers, it would be virtually impossible for a hacker to appropriate a company’s entire database. When a small business could essentially be destroyed by hackers seizing data or launching a ransomware attack, the innate security features of the blockchain could be a very attractive feature.
One of the core features of the blockchain is the concept of smart contracts, in which terms and conditions are embedded in computer code. In a simple implementation, that could mean payment would be transmitted at the time when goods are delivered. It could also be used in more complicated scenarios. For instance, if an event was cancelled, ticket holders could be issued a refund automatically.
Advocates for the blockchain typically extol the idea of smart contracts, claiming that having contract terms embedded in code can make businesses run smoother. Yet skeptics rightly point out that, as with any computer code, bugs can occur. And poorly coded smart contracts could cause major problems. Github, a site used by programmers, features a section on the best practices for smart contracts.
Some companies seeking to raise money have bypassed traditional means, such as securing bank loans or venture capital investment, and launched what’s known as an ICO, or initial coin offering (sometimes called an ITO, or initial token offering). The way it works is a company creates its own blockchain based token, which is sold to those who want to own a share of the company.
There have been successful examples of ICOs, including a Spanish company that raised 17.5 Euro in less than three minutes. But there have also been cases of fraud involving ICOs, and the SEC has posted information about ICOs which include ample warnings.
It’s too early to say how much impact the blockchain will have on small businesses, but it’s clear that blockchain technology is being put to very good use in a wide variety of businesses. And those who don’t pay attention to it may likely miss many potential opportunities.