In the past, we’ve tracked several events that point out the cautionary reasons small businesses have not embraced the cryptocurrency bitcoin (a fluctuating value and its early use in criminal and terrorist transactions are two obvious ones). However, we’ve always noted that under the right circumstances and protections, a form of cryptocurrency is likely in our future. What’s more, blockchain, the underlying technology that enables bitcoin, can be utilized in ways that could benefit small businesses–ways that have nothing to do with financial transactions, but rather are focused on the transfer of sensitive data. Because it may be of benefit to small businesses, the Small Business Administration Office of Advocacy is tracking the development of blockchain.
The following is an update on blockchain technology by Miriam Segal, an SBA Office of Advocacy research economist. Views expressed may not be those of SmallBusiness.com.
Blockchain is perhaps best known as the technology underlying the virtual currency bitcoin. The Harvard Business Review describes it as “a vast, global distributed ledger or database running on millions of devices and open to anyone.” If this sounds like a nebulous concept, perhaps it is because blockchain’s definition is stretching to the point where it no longer refers to a particular technology or solution.
Here are some of the most commonly mentioned benefits of blockchain:
- Improved security in transfer of digital media
- Removal of middlemen in transactions
- Ability to replace escrow function of banks
- Can make illiquid assets liquid due to the ease of authentication
- Improved settlement time
For small businesses, these benefits could mean easier access to capital as administrative hurdles are removed.
Beyond financial assets, blockchain can be used to register and track physical assets through the supply chain. For example, it could be used to track the origin of foodborne illness would be easier. The use of blockchain to track land titles (especially those with multiple owners) is promising as well.
It is estimated that by 2018, more than 80 percent of banks will have implemented something involving distributed ledgers.
Blockchain can also be used to track intellectual property and digital property. Blockchain could be particularly important for small businesses in the arts and entertainment industry, as it could make it easier for them to collect royalties and payments.
It appears that the hype around blockchain is at least partially justified, and that small business stand to reap many benefits from the development of this technology.However, as of late 2016, regulatory issues surrounding blockchain have not been addressed fully. As blockchain developments advance, not only should technologists, lawyers, and regulators be involved, it also is important to keep the needs of small businesses in mind.