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Is Blockchain Disrupting Traditional Business Models?

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Written by
Shivani Tripathi
Published on
August 10, 2023

One must live under a rock to miss the hype around blockchain and its ability to disrupt traditional business models. This technology is set to revolutionize how business is conducted today and make it faster, more efficient, and cost-effective.

Fundamentally, blockchain is a decentralized distributed ledger that records transactions in secure and transfer-proof blocks. Unlike typical ledgers, a single entity or authority does not control the blockchain. Instead, each transaction is verified and validated by a network of participants, creating a transparent and accessible system ideal for many business use cases.

One significant disruption blockchain can make is facilitating safe and swift peer-to-peer transactions, eliminating intermediaries and their associated costs. No wonder blockchain adoption is surging globally. By 2025, the business value-add for blockchain will grow to over $176 billion.

Besides, the technology can also create new opportunities for innovation and collaboration. This blog will examine how blockchain changes the business landscape and reshapes traditional business practices.

How Is Blockchain Different From Traditional Database Models?

By now,  you must have understood that blockchain is a secure, transparent, and efficient alternative to the traditional database system.

Here are some critical areas of differences between the two systems:

Centralized Vs. Decentralized Systems

As mentioned earlier, traditional databases are usually centralized. There is a single point of control or authority.

In contrast, blockchain is a decentralized system. Here, all the participants of the network validate and verify transactions. Thus, they are highly transparent and secure.

Immutable Records

In a centralized system, the controlling authority can erase or alter data. The same is not possible in blockchain since each participant has a copy of the ledger.

Any changes to these ledgers have to be validated by all. Hence, records in the blockchain are not susceptible to tampering and manipulation.

Smart Contracts

The smart contract is another distinguishing feature of blockchain. Businesses can program these self-executing contracts to automate business processes.

They automatically enforce when certain conditions are met. Traditional databases do not have such sophisticated capabilities.

Impact Of Blockchain Technology On Business Models

Blockchain technology has provided access to products and services that were not previously available. It has brought about newer ways of improving efficiency, accountability, and transparency in business processes.

Here's how blockchain is creating value for businesses:

Disintermediation

Disintermediation is the process of removing intermediaries from a supply chain or cutting out intermediaries in connection with a transaction. It involves the removal of consultants, brokers, banks, and other intermediaries, allowing individuals to transact directly.

The traditional business model relies heavily on intermediaries. Though intermediaries add value, they often add cost and create inefficiencies. Blockchain can reduce this reliance by facilitating direct and safe peer-to-peer transactions.     

Consider the example of cryptocurrencies. They enable faster money transfers between individuals without requiring a bank. Similarly, Propy, a blockchain-based platform, facilitates direct property sales between buyers and sellers, reducing the need for realtors.

Transparency And Traceability

Ledgers on the blockchain are distributed, i.e., each participant can produce a copy of it. Hence, any party can produce an auditable record of all transactions.

Also, records on the blockchain cannot be altered or deleted. This immutability reduces fraud and counterfeiting and increases trust between parties.

It can be challenging for traditional business models to meet the transparency and traceability offered by blockchain. Businesses will have to rethink data management and record-keeping models to improve the authenticity and integrity of their data.

Increased Efficiency And Cost Reductions

By adopting blockchain and eliminating intermediaries, businesses can significantly reduce transaction costs and increase efficiency. Besides, blockchain transactions are faster and more secure than traditional systems.

Additionally, blockchain-enabled smart contracts can automate many business processes that involve executing contracts. It reduces the time and effort required to execute contracts manually.

New Revenue Streams

Blockchain improves traditional business practices and creates new opportunities for businesses to make money.

For instance, companies can offer blockchain-based solutions that streamline business operations and manage the supply chain. With the global spending on blockchain solutions soon reaching $19 billion, this can be an opportunity worth exploring.

Businesses can also generate revenue by creating new forms of digital assets and using them as currencies or tokens. These tokens can provide access to services or be used as a means of exchange. It opens up new doors for businesses to monetize their products and services.

The Impact Of Blockchain Technology On Business Models In The Payment Industry

Blockchain has overhauled the payment industry by offering innovative solutions that make payment systems more efficient, secure, and accessible. Here are some ways in which blockchain has transformed the traditional payment business model:

Decentralized Payment Systems

Blockchain has introduced a decentralized payment system where people can make payments faster and at lower costs than banks.

Such systems also provide greater financial inclusion for unbanked and underbanked areas. People can now access financial services even without a bank account.

Increased Security

Blockchain's decentralized payment system is transparent, traceable, and secure. It reduces the risk of fraud, cyber-attacks, and data breaches, the major concerns of traditional payment systems.

Enhanced User Experience

Blockchain offers a more convenient and user-friendly payment experience. Users have greater control over their funds and can make payments in seconds.

Further, by using smart contracts and other advanced blockchain features, businesses can create customized payment solutions that meet the specific needs of their users.

The Impact Of Blockchain On Business Models In Banking

Blockchain is transforming many things in the banking system, from payments and transactions to how capital is raised in the private market. Here are some significant impacts blockchain has been making in the traditional banking model:

Reduction Of Transaction Costs

Blockchain provides a platform for unknown parties to transact safely without the need for intermediaries like banks. As such, individuals can save many of the costs associated with traditional banking processes such as payment processing, settlement, and reconciliation.

Reducing the gatekeeper in the credit industry also makes it easier and cheaper for individuals to borrow money and raise capital.

Faster Transactions And Settlements

Blockchain's distributed ledger technology brings us closer to real-time transactions between financial organizations.

Using tools like smart contract has the potential to automate manual processes like KYC, compliance, and settlement, bringing more efficiency to the system.

Improved Risk Management

Blockchain's immutable ledger provides a tamper-proof record of all transactions, making it easier for banks to track and manage risks.

Using blockchain technology in credit scoring allows a more accurate and comprehensive evaluation of an individual's creditworthiness, helping banks mitigate credit risks.

Blockchain: A Business Model Innovation Analysis

Business models continuously evolve to adapt to technological changes, consumer preferences, and market conditions. With the advent of blockchain technology, businesses now have new tools and capabilities that allow for more efficient, secure, and transparent operations.

The technology can disrupt businesses across industries by providing new and better ways to execute transactions and payments. The decentralized and secure data storage and transfer system is its most significant offering. With it, companies reduce costs, increase efficiency, and improve transparency in their operations.

Blockchain has also given rise to new business models that were previously unheard of. Examples are peer-to-peer transactions or direct buyer and seller interactions. Innovative tools like smart contracts can also automate contract execution and streamline business processes.

Business Model Challenges In Blockchain

Undoubtedly, blockchains open new doors of opportunities for businesses. This is why the blockchain industry is growing at a compound annual growth rate of 56.3%.

However, there are certain challenges associated with implementing and operating blockchain for business:

Regulatory Issues

Since blockchain is still new and evolving, businesses adopting the technology may find it challenging to navigate the regulatory landscape surrounding it.

Many aspects of its regulations are still unclear, making compliance difficult. It can also be challenging for businesses to anticipate future regulatory requirements.

Interoperability Challenges

Different blockchain platforms may have different characteristics, protocols, or data formats, and integrating these systems can be challenging.

It may make it difficult for various businesses to work together and leverage the full potential of the technology.

Scalability

While blockchain transactions can be very efficient on a small scale, they can become slower as transaction volume increases. Many public blockchain applications are struggling to handle mass integration.

For instance, transaction processing in Ethereum and Bitcoin networks sometimes takes days. It can limit the potential use cases for blockchain and make it less practical for certain industries and applications.

Final Words

As we can see, blockchain technology is the path to disrupt and revolutionize traditional business models. Thanks to its decentralized and immutable ledgers, transacting via blockchain is transparent, more efficient, and secure.

Blockchain can bring disintermediation, traceability, cost reductions, and new revenue streams to businesses. Blockchain payment systems are more user-centric and cost-effective. Blockchain has also affected the banking sector by improving security and facilitating easier capital raising in the private market.

As such, the future outlook for blockchain in business models looks bright. As the technology continues to evolve, the hurdles to its adoption will reduce, and we can expect more innovative blockchain business applications.

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