Industry Outlook

What the Heck is Blockchain and Why Should I Care?

Screen Shot 2018-10-26 at 2.41.02 PMBy John Brady

For those of us in the children’s products business who still invoice and collect hard currency, we probably haven’t been spending a lot of time watching the fluctuations of crypto-currencies such as Bitcoin, or the tech platform that enables them. That may be a mistake. I’m not suggesting that you go out and acquire Bitcoins, Ethers or Ripples, but you should know the benefits of blockchain and how it could revolutionize the way we do business.

In 700 words I can’t make you an expert in the ways of blockchain, but I can suggest some processes where blockchain could speed up your business; introduce transparency among your constituencies; enhance your dealings with investors, banks, suppliers, regulators and customs, internal or external teams and customers; and reduce your dependence on outside service providers.

According to IBM, which has published several explanatory documents on blockchain from a layman’s view, “blockchain will do for transactions what the Internet did for information, … allow increased trust and efficiency in the exchange of almost anything.”

Think of exchanges of currency, ownership, specific contractual obligations, workflows, movement of goods, regulatory compliance, product testing—the interactions consumer products companies have with virtually everyone else. It can all be facilitated by blockchain, while cutting time, cost, ‘facilitators,’ and ‘third parties.’

The question of how has already been the subject of many white papers, op-eds and books, but briefly, think of blockchain as an operating system like the one on your computer or your smartphone. It can enable any number of applications, of which Bitcoin is just one. Blockchain stores data in blocks that occur in sequence, forming a chain—hence the name. So where does it store this transaction data? It goes onto the distributed, or shared, ledger in the cloud, allowing all parties who have permission to view it in real time.

Instead of you, your offshore supplier, their long-lead OEM contractors, and the transport companies all keeping separate ledgers on the development, manufacture, and movement of product to the consolidator, blockchain enables visibility (as much as you allow) of the salient steps of the process on the ledger, for all to see. Payment for services can be immediate; bills of lading transferred in real time and ownership transfer can take minutes instead of days. With each participant posting his part of the process, you can cut out those agents who collect fees but add no value.

This distributed ledger is immutable. It is in the cloud for all approved parties to see. It can’t be undone, so it is a permanent record in the event of disputes. Adjustments can be made, but only in subsequent blocks. So, ‘he said, she said’ is a thing of the past.

The current transaction system we use has inherent obstacles and speed bumps:

  • There is a time delay between a transaction and payment for services and products
  • Every participating party keeps its own ledger, causing duplication of effort and a potential need for third-party validation
  • Mistakes, fraud and more recently, cyber attacks slow the business process and increase risk for all, especially if the affected entity is a bank
  • Limited transparency and inconsistent information can slow down any transaction and halt the flow of goods through the supply chain in critical shipping seasons

These challenges can be applied to transactions for offshore goods, direct to consumer sales, licensing agreements, leases, capital equipment purchases, and virtually all your business dealings. Now let’s look at what blockchain can do to remedy those issues and others right now:

  • Transaction times are cut from days to minutes
  • Reduced costs of oversight by outsiders, middleman involvement and duplication of effort
  • Increased security and privacy through permissioned networks with members-only proof of identity
  • Improved audit ability with a distributed ledger that is the single source of truth
  • Streamlined operational efficiency—faster, cheaper

If you haven’t taken notice of these developments up to now, you should. The internet took less than two decades to become ubiquitous. I suspect blockchain will set new standards in one-quarter that time.

John W. Brady is a business consultant with Inveniam Capital Partners, a blockchain-based investment bank. Brady specializes in CPG business with an emphasis on the toy and juvenile products segments.