A report by Mercator Advisory Group
Perhaps the most common point of friction between commercial partners is the effort associated with keeping the books balanced between the two entities, which typically have very different perspectives. This friction is most often addressed using trusted third parties that provide arbitration and occasionally escrow services at no small cost in labor and fees. The most frequently stated application of the blockchain is to establish a shared ledger between trading partners that eliminates this point of friction, but this solution is practical only if the commercial partners make substantial changes. There are several reasons such an application is impractical:
First, the partners must agree to work with a cryptocurrency, or at least another ledger, rather than existing payment and communications networks; otherwise, exchanges and exchange rates remain an ongoing point of risk, cost, and yet another set of books.
Second, partners must understand regulatory issues associated with blockchain and Bitcoin solutions and address regulators’ concerns.
Third, all parties need to understand and deploy the blockchain technology and integrate it into their existing systems. Because the blockchain is a distributed solution, making changes to the shared software implementation, for example simply to add a field, requires that all parties agree and that the ledger “fork,” an event that occurs when a new ledger instance is created.
Last, the blockchain inherently makes all transactions between parties visible to each participant (even if they are not direct parties). Even though the identities of participants in a given transaction are protected by encryption, this means that other participants in the blockchain learn about the existence of a transaction, which is often still a strategic insight. For instance, seeing a number of high-value transactions between new participants might hint that a new business partnership is in the works before its public disclosure.
These issues represent major inhibitors to rapid deployment and adoption of blockchain in business-to business, or B2B, environments.
There is, however, a solution that doesn’t require a new legal framework, trust in untrusted software, or even the deployment of a new payment network. It is possible today to utilize a trusted third-party arbiter to assure that every transaction is recognized and properly logged and all parties accounted for. (This means accounting for all perspectives of each cooperating party are accounted for no matter how many parties or how complex the transaction). Doing this requires an automated rules-based double-entry ledger system that includes connectors to public and private payment networks, which can be modified easily from a central, cloud-based location. Enter ModoPayments, or just “Modo” to its friends, which has already implemented this solution for multiple business partners.
Read the full report here.