Blockchain technology has taken the world by storm with cryptocurrency being the talk of the town and everyone investing unreal amounts of money in Bitcoins, Ethereum and whatnot. However, blockchain is not just a technology used in the financial world, on the contrary, it is also making waves in the entrepreneurship world. Companies like JP Morgan Chase, Walmart, and IBM have also hopped onto the blockchain technology bandwagon.
Blockchain Technology enables the secure sharing of information. Data stored in the database can be accessed via nodes or participants of a public or private computer network. This is known as distributed ledger technology, or DLT. A blockchain has three central attributes – a blockchain database must first be cryptographically secure, meaning that two cryptographic keys—a public key, which is the database address, and a private key, which is a unique key that the network must authenticate—must be used to access or add anything to the database.
Next, a blockchain is a digital log or database of transactions, meaning it happens entirely online. And lastly, a blockchain is a database accessible via a public or private network.
What’s in for entrepreneurs?
There are multiple types of blockchains. Some are Public, Private, Consortium, Hybrid, Permissionless and Permissioned. Each has different characteristics and uses. From an Entrepreneurship point of view, the most important of them is the Permissed Blockchain, which requires participants to obtain permission or be granted specific access rights to join and interact with the network. Permissioned blockchains offer higher privacy, control, and efficiency compared to permissionless blockchains.
Blockchain technology has gained significant attention in the realm of entrepreneurship due to its unique features and potential benefits. Some of them are mentioned as follows-
1. Smart Contracts – Smart Contracts are programmable agreements that automatically execute predefined actions when specific conditions are met. Entrepreneurs can use smart contracts to aid in supply chain management, payments, legal arrangements etc. The use of smart contracts thus reduces the time taken to streamline agreements and processes.
2. Decentralized Applications – Entrepreneurs can build decentralised applications on blockchain platforms, eliminating the need for intermediaries, increasing transparency and reducing the chances of fraud. From the Indian perspective, this use of blockchain technology will especially be helpful in the agricultural sector where intermediaries drive up the prices of produce and cheat on farmers and landless labourers.
3. Supply Chain Management – As mentioned earlier, blockchain technology enhances traceability and transparency. Thus, supply chain management gets easier with blockchain technology now that the quality of products, location, and authenticity of products can be supervised.
4. Intellectual Property Protection – Entrepreneurs can timestamp their creations, patents, copyrights, trademarks etc. on a blockchain network. Indirectly, this will also work as proof in judicial courts in case another company tries to copy a patented design.
Case Study: Walmart & IBM Food Traceability System
Walmart has been using blockchain technology to trace food sources since 2016. Walmart partnered with IBM to create a food traceability system based on the Hyperledger Fabric (a project hosted by the Linux Foundation).To test the system, they conducted two proof-of-concept projects. The primary objectives of the two projects were to track pork sold in Walmart’s China stores and mangos sold in its US stores, respectively. The system proved successful for both projects. For pork sold in China, a certificate of authenticity could be uploaded on the blockchain and for mangoes in the USA, the time taken to trace their sources went from 7 days to 2.2 seconds! According to the HyperLedger Foundation, the company plans to build other systems for other products soon.
Relationship Between Layoffs and Share Price
After the recent hike in interest rates, the profit margins for producers and investors have decreased drastically. Under such challenging economic conditions, coupled with supply chain breakdowns and geopolitical issues, the most efficient cost cutting methods for tech firms are layoffs.
Since most of the tech firms are in the service sector, such as SaaS, a major portion of their cost is spent on giving salaries and compensation to employees. When times are bad and interest rates are rising, the earnings and profitability of these tech firms decrease. This eventually has a ripple effect on the stock price as investors become pessimistic after seeing the financials of the firm before investing. At its core, the price of a stock works on the basic principle of supply and demand. Since operating profits and earnings are reduced due to a higher interest rate, it sends out a signal to the market that the firm is not performing well. This results in reduced demand and is sometimes coupled with the selling of stock as well. This sudden fall in demand, despite supply remaining approximately the same, leads to a fall in the price of the stock.
As a result, investors force their portfolio companies to pursue layoffs so that the earning ratio and profitability shown in the quarterly results can be increased. Further, mass layoffs send a signal that the executive and board of directors are ready to take tough decisions to improve the financial health of the firm. Thus, it has been seen that in the short run, mass layoffs are seen as a way to cut costs and increase revenue and profitability. This sends a signal to potential investors that the executives are taking tough calls and doing their best to improve the growth and financial health of the company. As a result, demand increases while supply remaining the same leads to an increase in the stock price.
However, it is to be noted that this works only in the short run, provided that the expectations of the investors and the actual performance of the same company are on the same page. It has generally been seen that when there is a disconnect between investor’s expectations and the actual performance of the company, many early investors dilute their shares. This news spreads like wildfire, forcing other investors to also dilute their shares, thus leading to a decrease in stock prices in the long run.
Potential Challenges for India
While blockchain technology offers numerous advantages, it also faces scalability, energy consumption, and regulatory concerns. India hosts innumerable MSMEs and thus may face a few challenges while trying to incorporate blockchain technology in its business workings. Small-scale industries can find it expensive to harbour the initial costs, development, maintenance as well as associated infrastructure as compared to traditional centralized systems.
Technical expertise is also quite an issue to tackle since skilled labour is a pre-requisite to handle such a system but they require more wages as compared to semi-skilled labour. In numerous jurisdictions, the regulatory landscape surrounding blockchain technology is still developing. For MSMEs considering blockchain implementation, compliance with current rules, such as data protection and financial legislation, might be challenging.
One of the most challenging aspects of using blockchain technology as an MSME is the network effect, which states that the value of a network increases with the number of participants, and frequently determines the value of blockchain networks. It can be challenging for MSMEs to convince other stakeholders to use the technology to join an existing blockchain network or to create a new one. Due to the possibility that MSMEs would need to communicate with partners or clients utilising several blockchain systems, interoperability between different blockchain platforms is a problem. Smart Contracts raise questions about their legal validity and enforceability under Indian law. There is ongoing debate and discussion about how smart contracts fit within existing legal frameworks.
Another issue in the blockchain industry is the protection of intellectual property rights. New consensus processes or cryptographic algorithms in blockchain technology may call for new regulatory frameworks to solve difficulties with copyright, patents, and other intellectual property rights.
Although India has been trying to find a balance between innovation and regulation, they are yet to entirely avert the idea of blockchain technology. Blockchain District in Telangana, anchored by the Government of Telangana, is quite an example of India’s effort towards the introduction of blockchain technology. Govt of Telangana, IIIT – Hyderabad, Centre for Development of Advanced Computing (CDAC) and Tech Mahindra are the Founding Members of Blockchain District. Everything related to blockchain technology has been tried to bring under one single umbrella.
Overall, this is true that there are regulatory concerns associated with blockchain technology in India, there is also recognition of its potential and ongoing efforts to strike a balance between innovation and regulation. Hopefully, India will see an equitable benefit of blockchain technology not just for big MNCs but also for MSMEs shortly.
- Blockchain in the food supply chain – What does the future look like? (n.d.). Blockchain in the Food Supply Chain – What Does the Future Look Like? https://tech.walmart.com/content/walmart-global-tech/en_us/news/articles/blockchain-in-the-food-supply-chain.html#:~:text=After%20partnering%20with%20IBM%20to,literally%2C%20the%20speed%20of%20thought!
- Dunlap, S. (2023, February 20). How Can a Blockchain Be Used in Business? | Impact. Impact Networking. https://www.impactmybiz.com/blog/how-can-blockchain-be-used-in-business/#:~:text=Blockchain%20Applications%20for%20Businesses&text=One%20of%20the%20most%20common,one%20single%20entity%20or%20bank.
- Hyperledger Foundation. (2022, June 27). Walmart Case Study – Hyperledger Foundation. https://www.hyperledger.org/learn/publications/walmart-case-study
- The District – Blockchain District. (2020, July 30). Blockchain District. https://blockchaindistrict.telangana.gov.in/the-district/
- Tnn. (2021, December 18). Telangana calls entrepreneurs to pilot blockchain solutions in the state. The Times of India. https://timesofindia.indiatimes.com/city/hyderabad/t-calls-entrepreneurs-to-pilot-blockchain-solutions-in-state/articleshow/88348334.cms
- What is blockchain? (2022, December 5). McKinsey & Company. https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-blockchain