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How blockchain technologies impact yourbusiness model

Vida J. Morkunas a,*, Jeannette Paschen b, Edward Boon c

a Luleå University of Technology, Universitetsområdet, Porsön, 971 87 Luleå, SwedenbKTH Royal Institute of Technology, Lindstedtsvägen 30, 114 28 Stockholm, Swedenc School of Business & Technology, Webster University Geneva, 15 Route de Collex,1293 Bellevue, Geneva, Switzerland

Business Horizons (2018) xxx, xxx—xxx

Available online at www.sciencedirect.com

ScienceDirectwww.elsevier.com/locate/bushor

KEYWORDSBlockchain;Private blockchain;Public blockchain;Business model;Blockchain technology;Innovation strategy

Abstract Much of the attention surrounding blockchain today is focused on finan-cial services, with very little discussion about nonfinancial services firms and howblockchain technology may affect organizations, their business models, and how theycreate and deliver value. In addition, some confusion remains between the block-chain (with definite article) and blockchain (no article), distributed ledger technolo-gies, and their applications. Our article offers a primer on blockchain technologyaimed at general managers and executives. The key contributions of this article lie inproviding an explanation of blockchain, including how a blockchain transaction worksand a clarification of terms, and outlining different types of blockchain technologies.We also discuss how different types of blockchain impact business models. Building onthe well-established business model framework by Osterwalder and Pigneur, weoutline the effect that blockchain technologies can have on each element of thebusiness model, along with illustrations from firms developing blockchain technology.# 2019 Kelley School of Business, Indiana University. Published by Elsevier Inc. Allrights reserved.

1. Blockchain beyond bitcoin

Emerging technologies regularly serve as enablingforces for economic, social, and business

* Corresponding authorE-mail addresses: vida.morkunas@ltu.se (V.J. Morkunas),

jeannette.paschen@indek.kth.se (J. Paschen),boon@webster.ch (E. Boon)

https://doi.org/10.1016/j.bushor.2019.01.0090007-6813/# 2019 Kelley School of Business, Indiana University. Pu

transformation (Cohen & Amorós, 2014; Paschen,Kietzmann, & Kietzmann, in press). According to theGartner Hype Cycle for Emerging Technologies, atool to illustrate the maturity and adoption ofspecific technologies, blockchain placed amongthe top five technology trends in 2018 (Kietzmann,2019; Panetta, 2018). Much of the attention onblockchain today has focused on its ability to changethe financial services industry fundamentally. Butthe impact of blockchain technology goes beyond

blished by Elsevier Inc. All rights reserved.

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2 V.J. Morkunas et al.

the financial sector (Hughes, Park, Archer-Brown, &Kietzmann, 2019) and encompasses any businessthat acts as or relies on an intermediary betweentwo parties–—for example, a buyer and a seller–—andextracts economic rents from a brokerage positionin the value chain. Therefore, blockchain is pre-dicted to challenge existing business models andoffer opportunities for new value creation.

Unfortunately for businesses, there is little guid-ance on the different blockchain technologies andsolutions in existence today and how these mightaffect businesses and business models. While theblockchain technology underpinning Bitcoin is themost discussed variant, it is far from the only one.While it is easy to find sources that support block-chain’s potential to disrupt all business activity asprofoundly as the internet, email, social media, ormobile did (Swan, 2015; Tapscott & Tapscott, 2016),it is much harder to find material that explains howblockchain technologies vary and how the differenttypes can offer value to businesses. Furthermore,there exists confusion over related terms, such asthe blockchain (with definite article) and block-chain (no article), both distributed ledger technol-ogies, and applications of these by which economicactors exchange digital representations of assets.Our article addresses these gaps.

2. Foundations of blockchaintechnology

The beginnings of blockchain go back to a whitepaper written by Satoshi Nakamoto (2008). Nakamo-to introduced a peer-to-peer version of electroniccash, bitcoin, that allows online payments to besent directly between parties without going throughcentralized financial intermediaries. As part of theimplementation of bitcoin, Nakamoto also devisedthe ledger, which Nakamoto named “a chainof blocks” (Nakamoto, 2008, p. 7). This chain ofblocks supports the new version of electronic cash

Figure 1. The six steps of asset exchange using blockcha

Source: Adapted from Coinmama (2018).

(The Economist, 2015) and was later termed block-chain. Many other blockchain technologies havebeen developed since Nakamoto first introducedthe blockchain.

Blockchain provides a decentralized digital da-tabase of transactions, also known as a distributedledger, which is maintained and updated by a net-work of computers that verify a transaction beforeit is approved and added to the ledger. It allowstransacting parties to exchange ownership of digi-tally represented assets in a real-time and immuta-ble peer-to-peer system without the use ofintermediaries. Figure 1 illustrates the six stepsof asset exchange between two economic actorsusing blockchain technology.

When a transaction between two parties is aboutto take place (Step 1), it is first converted into ahashed transaction proposal and stored as a candi-date to be printed on the ledger. This proposedtransaction includes basic information such asdate/time, sender, receiver, asset type, and quan-tity. The proposed transaction is provided with aunique cryptographic signature that ensures theintegrity and authenticity of the record (Step 2)and then broadcast to a network of distributedcomputers for processing and authentication (Step3). These computers process and authenticate thetransaction (Step 4) and, once authenticated, thetransaction is added to the digital ledger (Step 5),which completes the asset transfer between thetwo parties (Step 6). Each new transaction is linkedto those recorded previously, providing a complete,irreversible and verifiable history of all transactionsever made on this blockchain.

Before proceeding further, it is important toclarify noteworthy blockchain-related terminology.Consistent with the approach suggested by Swan(2015) and Evans-Greenwood, Harper, Hillard, andWilliams (2016), we herein use the terms as follows:

� Blockchain, without the use of an article. Block-chain technology, or a blockchain (indefinite

in

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How blockchain technologies impact your business model 3

article), refers to the underlying technology: Anetwork of computers and algorithms that pro-cess Bitcoin and many other distributed ledgerapplications.

� The blockchain, using a definite article, refers tothe technology underpinning bitcoin specifically.

At its core, a blockchain is a decentralized store ofinformation (Swan, 2015) comparable to an infor-mation systems database that is updated in realtime and distributed to its user base for validatedrecord keeping. As outlined above, validators re-view and authenticate each proposed transactionbefore it is added to the ledger.

With regard to the type of access for the users ofa blockchain, there exist two types of blockchains:public and private. Private can take on one of twosubforms.

Public or open blockchain technologies allowanyone to interact with another transacting party.The identity between the two parties is eitherpseudonymous or even entirely anonymous (i.e.,the transacting parties do not know each other priorto the transaction; Vaughn, 2015). An open block-chain implies little to no privacy for transactions,implying that all participants can view all trans-actions. An open blockchain also requires a substan-tial amount of computational power that isnecessary to maintain a distributed ledger on alarge scale (Jayachandran, 2017). More specifically,to achieve consensus in most public blockchains,each node in a network must solve a complex,resource-intensive cryptographic problem called aproof of work to ensure all nodes of the blockchainare in sync. Examples of open blockchain includeBitcoin, Litecoin (a cryptocurrency designed to befaster than Bitcoin), and Ethereum, which is proc-essed in a different manner than Bitcoin and Lite-coin and is used primarily for smart contracts. Asmart contract consists of self-executing code on ablockchain that automatically implements theterms of an agreement between parties.

Private or closed blockchain technologies allowonly prevalidated individuals or groups of individu-als to access the ledger and enter and view data.Here, others know the identities of all users prior totransacting. A variant of the private blockchain isthe federated or consortium model, in which theblockchain operates under the leadership of agroup. This type of blockchain is a private networkthat maintains a shared record of transactions ac-cessible only to those who have been prevalidated.Who grants new entrants permission to use theblockchain varies: Existing participants can decideon future entrants, a regulatory authority can grant

new users licenses to participate, or a consortiumcan make participation decisions. In contrast to apublic blockchain, a private blockchain offers moretransaction privacy, which is critical for transac-tions involving sensitive data (e.g., the transmissionof medical or financial data). The right to read theprivate blockchain may be open in some cases orthis right is restricted to the participants only.Closed blockchains are easier to scale up, cut downcosts, and feature greater transactional through-put. Additional advantages include added security,lower costs, added reliability, and a higher level oftrust, as only preverified parties are able to initiatea new node in the blockchain (Coburn, 2018). Somemembers of the blockchain developer communitydo not consider private blockchains to be block-chains; heated discussions continue in web commu-nities as well as during conferences (Kessels, 2018).Examples of closed blockchains include Linux-basedHyperledger, which supports the collaborativedevelopment of blockchains and tools in banking,finance, Internet of Things, supply chain,manufacturing, and technology, and R3, a distrib-uted ledger technology company that leads a con-sortium of more than 200 firms and developsapplications for finance and commerce on its block-chain platform (Vaughn, 2015).

Despite the differences described above, openand closed blockchains offer some common fea-tures:

� Both are decentralized peer-to-peer networks, inwhich each participant maintains a replica of ashared append-only ledger of digitally signedtransactions;

� Both maintain the replicas in sync through aprotocol referred to as consensus; and

� Both provide certain guarantees on the immuta-bility of the ledger, even when some participantsmay be faulty or malicious (Coburn, 2018).

3. How can blockchain impact yourbusiness model?

Blockchain technologies offer many possibilities togrow entirely new businesses and pose directthreats of disruption to traditional incumbents.Organizations using conventional business modelsbuilt on the predication of acting as an intermediarybetween two transaction parties must ask them-selves if and how blockchain technologies may im-pact their value propositions, how they compete,and how they operate. Pilot projects are currently

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underway in several industries including the use ofblockchain to track the transport of goods inside ofan industrial supply chain; use of smart contracts toenable secure, faster, and less expensive real estatetransactions; and use of blockchain to enable con-sumers to send funds abroad without incurring de-lays or high exchange fees. Firms need to considerhow their business model may be affected by rap-idly growing blockchain applications. To allow fora structured discussion of the potential impactsthat blockchain can have on business models, weuse the business model framework illustrated byOsterwalder and Pigneur (2013, p. 14), who said abusiness model “describes the rationale of how anorganization creates, delivers, and captures value”and consists of nine building blocks. These nineblocks cover the four main areas of a business: itscustomers, the offer, the infrastructure, and finan-cial viability. The nine elements are (1) customersegments, (2) value proposition, (3) channels,(4) customer relationships, (5) revenue streams,(6) key resources, (7) key activities, (8) key partner-ships, and (9) cost structure. When taken togetherand properly aligned, these elements create anddeliver value. Osterwalder and Pigneur (2013) sum-marized the nine essential parts of a business modelin a visual template termed the Business ModelCanvas. The canvas is usually drawn on a large pieceof paper with sections for each of the model’selements and thus serves as a tool to define,change, or evaluate a firm’s business model.

In the following subsections, we provide a blue-print of how each of the nine essential elementscould be affected by blockchain technologies andillustrate our propositions with examples that wecollected from blockchain development startups inEurope, North America, and South Africa. We gath-ered public information from the startup firms’websites, as well as news articles, press releases,and other sources.

3.1. Customer segments

Osterwalder and Pigneur (2013, p. 20) defined cus-tomer segments as “the different groups of peopleor organizations that an enterprise aims to reachand serve.” An organization using blockchain canaddress existing customer segments in a market.Individuals wanting to buy or sell real estate inSweden can use a blockchain technology pilot proj-ect powered by ChromaWay to purchase or sellhomes. Customer markets served by blockchainsystems can be similar to the segments served bytypical organizations: niche markets, diversifiedmarkets, and mass markets. However, blockchainis distinctive in that it can facilitate access to a

target market that was previously not reachable(Larios-Hernandez, 2017) and therefore createsnew customer segments for a business. Theseare the customer segments targeted by Everest inAfrica, Asia, and South America. Everest, a firm thatuses a private and permissioned Ethereum-basedprotocol, provides a decentralized distributedledger technology that incorporates a paymentsolution, a multicurrency wallet, and a biometricidentity system to facilitate microfinance transac-tions, land claims, and medical records to customersegments in developing countries. The potentialmarket is the group of 2 billion people who havelimited or no access to financial services.

3.2. Value proposition

The value proposition building block includes all ofthe firm’s activities that create value for customers(Osterwalder & Pigneur, 2013). As Harvard BusinessSchool Professor Theodore Levitt (1974, p. 8) fa-mously said: “People don’t want to buy a quarter-inch drill, they want a quarter-inch hole.” In otherwords, customers do not purchase products; theybuy a solution to get an important job done. Thevalue derived by the customer will increase in directproportion to the importance that the customerplaces on the job to be done and by the level ofsatisfaction with the current options to completethis job, the availability of other options, and theircost (Johnson, Christensen, & Kagermann, 2008).

Blockchain technology can influence customervalue by providing access to products or servicesthat were previously not available or could only begarnered by expensing a large amount of time ormoney. Swedish company Safello uses an openblockchain protocol to provide a transparentmeans to exchange bitcoin against fiat currencies.By doing so, it provides resources (e.g., foreigncurrency) that would have been otherwise notavailable or only available at additional expense.Centbee, in South Africa, enables the users of itsmobile app to send bitcoin to users’ contact lists.Centbee users can move money simply and cheaplyacross borders to support family and friendswithout incurring exorbitant currency exchangefees. Safello and Centbee disintermediate by re-ducing the requirement for a centralized bank, oreven eliminating a currency exchange service fortransactions.

Moreover, blockchain technology can also pro-vide faster or less expensive transactions than thosecompleted in traditional settings. As an illustration,the customer value proposition of certified notariesfor homebuyers is based on facilitating the owner-ship transfer of the asset from seller to buyer by

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How blockchain technologies impact your business model 5

authenticating the documentation of the respectivecontracts. Working with a notary for home pur-chases or sales requires time and is often expensive.Here, blockchain technologies can reduce the trans-action cost and time for the respective parties. Thismay be achieved by using smart contracts. As anexample, ChromaWay’s private blockchain protocolwill enable Swedish citizens to use smart contractsto purchase or sell a house and reduce time andcosts during the transaction.

3.3. Channels

The channels building block “describes how acompany communicates with and reaches itscustomer segments to deliver a value proposition”(Osterwalder & Pigneur, 2013, p. 26). These channelsmay be the company’s own sales force, website, orstores, or the channels may be the stores of itspartners or wholesalers. One impact of using block-chain is the simplification of doing business. Middleparties may become disintermediated. In the previ-ous section, we mentioned an example of real estatetransactions that are facilitated by smart contracts.This isaccomplishedby removing therequirement fortime and personnel required to complete a validitycheck or a transaction. New types of channels mayalso be introduced within an organization (e.g., bysharing common code to strengthen a supply chain;Montecchi, Plangger, & Etter, 2019).

3.4. Customer relationships

The customer relationship building block “describesthe types of relationships that a company establisheswith specific customer segments” (Osterwalder &Pigneur, 2013, p. 27). These relationships may bedrivenbyamotivation toacquirecustomers, toretaincustomers, or to boost sales. Examples of categoriesof relationships include personal assistance, dedicat-ed personal assistance, self-service, automatedservices, the creation of communities, or the co-creation of new content. For Lantmäteriet, theSwedish government’s land registry authority, thepilot workflow powered by ChromaWay streamlinedthe process of transacting real estate. The digitalledger records each step of a real estate transactionas well as the property title. The application canalso be accessed by bank representatives as well as byreal estate agents and contains secure informationthat is up-to-date and easy to access. Lantmäterietremains involved in the purchase throughout theprocess–—rather than intermittently–—and fulfills itsaims of creating greater confidence and transparencyin its dealings with Swedish citizens (Cheng, Daub,Domeyer, & Lundqvist, 2017).

3.5. Revenue streams

The fifth building block element of a business modelis the revenue streams. The revenue streams blockrepresents (Osterwalder & Pigneur, 2013, p. 30):

The cash that a company generates from eachcustomer segment. There are two kinds ofrevenue streams: Transaction revenues result-ing from one-time payments and recurring rev-enues resulting from ongoing payments toeither deliver a value proposition to customersor provide post-purchase customer support.

ABI Research (2018) estimated that $10.6 billion inrevenue will be generated by blockchain projects by2023, mainly from software sales and services(Mearian, 2018). Technology companies that pro-vide blockchain-related professional services deriverevenues from transaction fees for activity on anetwork, service level agreements for enterpriseclients or platform fees for software-as-a-service(SaaS) contracts. The greatest revenues from block-chain, however, have been derived from crypto-crowdfunding, using initial coin offerings (ICOs).An ICO is a form of fundraising that uses the powerof cryptocurrencies and blockchain-based tradingand provides an alternative to classic debt/capitalfunding as provided by venture capital and privateequity firms and banks. An ICO allocates tokensinstead of shares to the early investors in a business.These tokens can be traded on an aftermarket andall transactions are verified on a blockchain. In2017, 800 ICOs raised over $5 billion (CB Insights,2018), whereas in the first 5 months of 2018, a totalof 537 ICOs closed successfully with a volume of$13.7 billion (PwC, 2018a).

3.6. Key resources and activities

Osterwalder and Pigneur (2013, p. 34) defined keyresources as “the most important assets required tomake a business model work.” These are the re-sources that create the value proposition, reachmarkets, maintain relationships with customer seg-ments, and earn revenues. These resources may bephysical, financial, intellectual, or human. Key ac-tivities encompass all activities required to delivervalue (i.e., how a firm transforms the resources invalue-creating ways). While resources and activitiesare considered as two separate elements in theOsterwalder and Pigneur (2013) framework, wediscuss them jointly in this section because thesetwo elements are tightly linked.

Blockchain technologies require firms to recon-sider the key resources that make up their businessmodel. In the following paragraphs, we discuss two

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aspects of how blockchain technologies influenceresources and activities. The first aspect concernsthe opportunity to make resources more fluid, al-lowing firms to move away from the traditionalownership and to access resources only when re-quired. This opportunity is especially pertinent tothe application of public blockchain technologies inwhich, as described earlier, anyone can transactwith another party in a peer-to-peer network. Insome cases, firms can refrain from investments in ITinfrastructure build and maintenance because, inthe case of public blockchains, the network pro-vides these resources and processes. Furthermore,both applications of public and private/federatedblockchains enable firms to automate processesthat were previously manual, enabling humanresources to focus on other, more value-added ac-tivities. Examples of these processes include docu-mentation, verification, and audit reporting.

The second important aspect of how resourcesand activities can be affected by blockchaintechnologies is when the users provide many ofthe key resources and processes and use block-chain technologies to facilitate resource ex-change. Using the example of smart contracts inreal estate transactions, resources such as humancapital (e.g., knowledge, skills, experience) andphysical capital (assets) are provided by the trans-acting parties while blockchain technologiesfacilitate the peer-to-peer exchange of these re-sources.

3.7. Key partnerships

The building block key partnerships describes “thenetwork of suppliers and partners that make the

Figure 2. The blockchain and the business model canvas

business model work” (Osterwalder & Pigneur,2013, p. 38). These partnerships may take formssuch as strategic alliances, joint ventures, or buyer-supplier relationships to ensure reliable supplies.On the one hand, the use of blockchain may entailthe disintermediation of traditional intermediaries(e.g., banks, notaries, currency exchanges) ortransform financial institutions (e.g., credit cardcompanies). The use of blockchain can also enablethe addition of new partners such as technologycompanies that develop application programminginterfaces (APIs) and software development kids(SDKs), and maintain the transactional algorithms.Centbee developed a merchant payment ecosystemin South Africa to enable retailers to quickly andeasily accept bitcoin at point of sale without re-quiring the installation of additional terminal hard-ware. Blockchain also facilitates peer-to-peerpartnerships between businesses, thereforestrengthening and extending supply chains. Figure 2summarizes the impact of blockchain technology ona firm’s business model.

3.8. Cost structure

The final building block is the firm’s coststructure. The cost structure “describes all costsincurred to operate a business model” (Osterwalder& Pigneur, 2013, p. 40). Blockchain implementa-tions can reduce transaction costs such as negotia-tion costs and search costs, and eliminate the costsof intermediaries. In the financial services industry,blockchain technologies are expected to allow forannual cost savings of $15—$20 billion by 2022(Gregorio, 2017). These savings are the resultof a reduction in IT infrastructure costs and the

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How blockchain technologies impact your business model 7

elimination of manual processes that did not addmuch value to the firm.

Implementations of blockchain to manage finan-cial transfers can shorten the authorization holdscurrently implemented in banking and credit cardprocessing. Authorization holds can hold up fundsfor several days. Transaction consensus operationspeeds can reduce these holds to mere minutes inpublic blockchain protocols. On private block-chains, these holds are reduced to microseconds(Vukoli�c, 2018). Operations powered by blockchainrequire fewer manual steps in aggregating, amend-ing, and sharing data, or providing regulatory re-porting and audit documents. Employees can,therefore, focus on activities that add more valueand generate greater revenues while consumerssave time and money. Citizens in Sweden who ne-gotiate a home purchase by using a blockchain-powered smart contract and exclude previouslyrequired third parties from the transaction will savemoney and time during the transaction.

While our previous discussion considered thebusiness model elements separately and reliedon different examples for illustration, we closethis section with an explanation of the impact ofblockchain technologies by looking at one casestudy: How is blockchain application influencingWalmart’s business model? Walmart recentlylaunched a blockchain solution to detect and re-move recalled food from its products list andtrack every bag of spinach and head of lettuce(Corkery & Popper, 2018). The system is poweredby IBM’s Hyperledger blockchain-based supplychain tracking system technology. The solution isimplemented in response to a vexing businessproblem: tracing and immediately removing fromshelves any food that is harmful to shoppers andremoving only food that is harmful while leavingitems that are safe to eat on the shelves to be sold.Upon completing a pilot program with 25 stockkeeping units (SKUs) and 10 partners, Walmart isnow bringing more than 100 suppliers into an im-mutable and transparent ledger that can track foodfrom farm to store in seconds. Walmart expects toinclude additional products “on the scale of 50,000to 70,000 SKUs” (Mearian, 2018).

It is instructive to review the potential of thismajor project through the lens of the businessmodel canvas by Osterwalder and Pigneur(2013). The value proposition to Walmart’s consum-ers is that of increased food safety while keepingWalmart’s promise of Everyday Low Prices. Wal-mart’s dominance in the food retail sector enablesit to retain its profit formula with its revenue modelprotected, and cost structure, margins, and inven-tory turnover unchanged; in fact, automating the

tracking of the supply chain using Hyperledger isexpected to result in cost-savings for Walmart, thusincreasing the potential for profit. The key resour-ces and processes that are part of the supply chainimplementation also contribute to the customervalue. Data about food grown in farms and destinedfor Walmart will be logged on the blockchain atevery step of processing and transport, by usingmanual entry as well as with Internet of Thingsdevices (Corkery & Popper, 2018). Each step inthe supply chain is “not only recorded but trustedbecause of the features of blockchain are immuta-ble and use a consensus mechanism” (Mearian,2018).

The implementation of the blockchain-poweredtracking system enables Walmart to reducethe length of time required to trace the origin offresh food–—from the shelf all the way back to thefarm–—from 7 days to only a few seconds (Mearian,2018), enabling it to act swiftly in case of anycontaminations at source. Well-trained store em-ployees will contribute to the swift removal oftainted food from local shelves. The implementedblockchain-based system is therefore expected toimprove the value proposition to Walmart’s custom-ers of a ready supply of inexpensive, fresh, and,most importantly, safe foods.

4. Discussion

The critical mass of blockchain technology adoptionhas yet to be reached. Few blockchain projects havemoved from a pilot stage to full implementation.Recent research by Gartner reveals that only 1% ofresponding CIOs reported any sort of blockchainadoption, and only 8% of respondents are engagingin short-term planning and pilot planning (Gartner,2018). A report by Deloitte (2018a) is more positive:“While a majority (74%) of our survey respondentsreport that their organizations see a compellingbusiness case for the use of blockchain technology,only 34% say their company has initiated deploy-ment in some way.” According to Deloitte (Schatsky,Arora, & Dongre, 2018), several obstacles continueto limit the mainstream adoption of blockchaintechnology:

� Blockchain operations are viewed as slow. De-spite their ability to offer a significant increase inefficiency, when compared to standard multidayauthorization holds by banks and credit compa-nies, consensus operations still generate mi-nutes-long delays on a public distributed ledgernetwork. The additional layers of obfuscation andencryption required to keep data confidential

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add to the processing time (Marvin, 2017). Thishas a bearing on customer value creation, asconsumers and businesses expect speedy, nearlyinstantaneous operations.

� News reports about data breaches on cryptocur-rency trading platforms, contrasted with corpo-rate requirements for ironclad data securityacross disparate systems, are limiting managers’consideration of the technology.

� Blockchain architectures are not standardized.There were more than 6,500 active blockchainprojects listed on GitHub in 2018, with projectsbased on different protocols, consensuses, priva-cy measures, and written in different codinglanguages.

� Given this lack of standardization, establishingbusiness connections between firms by usingblockchain architectures is difficult because ofthe challenges of integrating different architec-tures.

� Costs continue to be high: blockchain applica-tions, developed to customer specifications, re-quire expensive specialized developers andrequire complex integration efforts.

� The constraints brought by regulation are anobstacle to consideration, particularly for inno-vative projects such as smart contracts. Regula-tory constraints, specifically in financial andmedical applications, prevent the rollout ofsmart contracts in several countries.

� The final obstacle is the lack of a critical mass ofusers, enabling the mass adoption of blockchaintechnology. Initiatives such as Everest’s large-scale humanitarian projects for the disenfran-chised are built on the belief that using block-chain to address these needs will accelerate awider use of the technology.

However, these obstacles to blockchain adoptionare being overcome by recent developments inregulatory easing, collaborations between orga-nizations, as well as new development in moreefficient blockchain architectures (Schatskyet al., 2018):

� New consensus mechanisms used in Hyperledger,Stellar, R3, and Ripple implementationsincrease throughput and performance, reducingprocessing time from minutes to milliseconds(Vukoli�c, 2018). Consensus is the method by

which participants in a blockchain network cometo agree that the transactions recorded in thedigital ledger are valid.

� Standardization efforts continue. There are cur-rently more than 60 blockchain consortia initiat-ing projects. These consortia bring togetherhundreds of private and public companies andgovernment organizations eager to explore thepotential of blockchain applications. Some de-velop use cases, set standards, develop infra-structure and applications, and operateblockchain networks. Others educate, conductresearch, or provide advice to their members.This is a positive sign, as “the value of thenetwork increases with the number of users”(Deloitte, 2018a). Some examples of these con-sortia include the Enterprise Ethereum Alliancewith more than 600 members and the Hyperledg-er Foundation, which includes over 250 organiza-tions. The number of companies that collaboratewith one another outside of established consortiais also increasing.

� The complexity and cost of blockchain implemen-tations are both declining. Amazon, IBM, andMicrosoft offer cloud-based implementations ofblockchain as well as templates at a cost that islower than specialized development (Patrizio,2018). These templates ease the setup process,reduce implementation time from months todays, and will enable organizations to reducethe costs of these initiatives.

� Finally, regulatory support is improving. Legisla-tion has been passed in several states in the U.S.to facilitate the adoption of blockchain for somemedical applications (Deloitte, 2018a).

The recent developments noted in Schatsky et al.(2018) stem from the growth in the number ofcollaborations and the increase in the formationof consortia. Organizations are carefully evaluatingthe blockchain movement and launching pilot proj-ects as proofs of concept. Meanwhile, entrepre-neurs issue and sell blockchain tokens andreshape entrepreneurship and innovation in fund-raising, investing, community building, and opensourcing (Chen, 2018). A major decision for orga-nizations undertaking blockchain projects lies in theselection of the blockchain model: private or pub-lic? The two types of blockchains that we describedare differentiated by unique selling propositions: aprivate blockchain can save an organization timeand cut costs, whereas a public blockchain has thepotential to disrupt an industry, either through

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disintermediation, as is the case in financial appli-cations of Bitcoin and other cryptocurrencies, or bythe creation of new business models (Tamayo,2017).

Despite the small number of implementations, itis still encouraging to see an increasing interest bycompanies to explore opportunities with block-chain technology. In his widely-discussed and de-bated article “IT Doesn’t Matter,” published over15 years ago in Harvard Business Review, Carr(2003, p. 43) noted that companies “steal a marchon their competitors by having a superior insightinto the use of a new technology.” New technolo-gies offer more efficient operating methods andlead to larger market changes. However, the win-dow for gaining this advantage is open only for ashort time. “By the end of the build-out phase,”Carr (2003, p. 43) suggested that “opportunitiesfor individual advantage are largely gone.” There-fore, those executives who see a compelling caseto begin a blockchain pilot should begin sooner,rather than later.

Whether the new blockchain projects lead toincremental or radical innovations is also worthyof examination. A useful model for categorization isHenderson and Clark’s (1990) framework for defin-ing innovation, based on the impact technologicalchange has on a firm’s established capabilities. Wehave observed in our small sample of case studiesthat consortia-led blockchain projects have thepotential to lead to architectural innovations,whereas public blockchain projects can engenderradical innovations. Architectural innovations re-configure established systems to link existing com-ponents in a novel way. Walmart’s use of a privateblockchain can be considered an architectural in-novation, as it enables it to create “new interac-tions and new linkages with other components inthe established product” (Henderson & Clark, 1990,p. 12). It relays information with greater velocityand credibility about the origins and freshness ofWalmart’s supply of spinach and lettuce. Radicalinnovation, by contrast, is based on different prin-ciples and leads to new applications and marketssuch as those fueled by the recent surge in ICOs. Italso enables the successful entry of new firms or thecreation of a new industry (Henderson & Clark,1990). Safello’s Bitcoin exchange for European cus-tomers and ChromaWay’s use of smart contracts forreal estate transactions are also examples of radicalinnovations.

One limitation of our article is the early-stagenature of the implementations under discussion andthe resulting small sample of active use cases. Manyprojects are early pilots and have not yet achievedfull rollout. As more projects move from pilot stage

to rollout, it will be interesting to explore whichindustries will create architectural innovations orgenerate radical innovations and to confirm wheth-er these will be supported by private or publicblockchains.

Empirical research can also explore which partsof the business model canvas are most affected bythe implementation of a blockchain: customer seg-ments, value propositions, channels, customer re-lationships, revenue streams, cost structures, keyresources, key activities, or partnerships. An addi-tional area for further investigation will be to ex-amine whether a private or a public blockchainoffers greater benefits for each of these elements.Such an investigation will require a larger sample ofcompanies running applications on blockchain thanis currently available.

5. Concluding remarks

We began this article with an explanation of block-chain technologies and continued with a descriptionof their impact on a firm’s business model. With afocus on an audience of general managers and exec-utives, rather than blockchain experts, we highlight-ed how blockchain technologies operate andexplained the two major types of blockchain–—publicand private–—currently in application in practice. Inaddition, we clarified some of the blockchain-relatedterminologies, thus adding to the conceptual clarityof the construct.

The main contribution of our article lies in pre-senting the influence blockchain technologiescan have on a firm’s business model. By using thewell-established business model framework fromOsterwalder and Pigneur (2013), we explainedhow the two types of blockchain technologies de-lineated in our article present opportunities forvalue creation for a firm’s business model (seeFigure 2). We used illustrative examples, derivedfrom our investigations of startup companies thatpilot blockchain technology solutions in the areas ofreal estate transactions, payment systems, curren-cy exchange, supply chain management, and appli-cations for the billions of unbanked citizens in thedeveloping world. We also identified directions forfuture research on the types of innovation generat-ed by blockchain innovations and an opportunity forempirical examination of impacts to the elementsof a firm’s business model once a larger sample ofblockchain implementations can be formed.

Managers can use the business model as an ana-lytical framework to assess the impact of blockchaintechnology for their existing business model; alter-natively, they may use the canvas to reinvent or

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develop completely new business models. This ex-ercise is useful because the addition of blockchaintechnology can affect how firms may run, operate,and compete. Managers must discern the potentialimpacts so as to not be left behind (Angelis & Ribeiroda Silva, 2019).

Blockchain holds promise in many organizationalapplications with several promising pilot projectsunderway. These focus on applications such as sup-ply chain, Internet of Things, digital identity, digitalrecords, digital currency, payments, and voting(Deloitte, 2018b). A survey by Credit Suisse(2016) identified the leading aims of blockchaintechnology pilots as the reduction of operationalcosts, shorter settlement time, reduction of risk,new revenue opportunities, and a reduction in thecosts of capital.

Most of the current pilot projects pertain tofinancial services (PwC, 2018b). Although many ofthese projects have improved operations, therehave also been instances of fraud, particularly inthe cryptocurrency blockchain sector in the area ofICOs. Although most ICOs are legitimate efforts toraise funding for startups, with varying degrees ofsuccess, some ICOs have been fraudulent from in-ception and enabled fraudsters to abscond with tensof millions of dollars (Arnold, 2018).

Applications outside of finance also seek to im-prove operations. Manufacturing companies seek totrace goods from purchase to delivery around theglobe reliably and quickly. Healthcare providersyearn for immutable and traceable patient records,to reduce pharmaceutical and insurance fraud, andimprove data exchanges in clinical trials. Publicsector projects include not only land claims butalso digital identity projects that will facilitatetravel, citizenship records and voting (Syeed,2018). Additional pilots seek to improve operationsfor retailers and entertainment and media orga-nizations. Blockchain has an opportunity to createbenefits beyond digital currencies and influence allsectors of the economy.

Managers are well advised to continuously moni-tor blockchain technologies to assess their impactand consider the strategic importance of blockchainfor their business. If they do not do so, they will losetheir competitive edge to those managers of firms,whether new or old, who understand blockchain andwho are ready to innovate their business models.

When evaluating a business case for blockchainadoption, executives and managers should ask thefollowing questions:

� What are the sources of value that blockchain canprovide?

� How will using blockchain align with the orga-nization’s goals and strategies?

� Does the organization have the right people,partnerships, and resources in place?

� Will the organization reach new customers,strengthen relationships, or increase sales?

� Will blockchain help service customer needs bet-ter and offer more value?

� Will blockchain tighten relationships inside thesupply chain?

� Could smart contracts be used to transact faster,accelerate payments, or reduce costs?

� Will blockchain improve organizational coststructures?

� Can it integrate within the existing IT ecosystem?

� Will blockchain help reduce search costs andnegotiation costs?

� Will blockchain enable the organization to com-pete more effectively?

Executives who are considering initiating block-chain projects will do well to consider the align-ment of their project with their overall businessstrategy and reflect on which element of theirbusiness model will become most improved bythe implementation. To help with this importanttask, our article provides a structured framework bywhich to assess the impact of blockchain technologyon each business model element. In addition, man-agers will need to decide whether an open or aclosed blockchain will help them realize their orga-nizational objectives. With a growing number ofconsortia, a decrease in complexity and costs ofimplementation, and a larger number of pilots andexperiments underway, blockchain is advancingrapidly toward greater acceptance. Astute execu-tives and managers should understand how thetechnology fits in their business and how it can helpimprove operations in order to capture its advan-tages ahead of their competitors.

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