Is it time for corporate innovators to look into crypto more closely?

Rayan Aebi, Managing Director for MENASA and South Asia, shares his perspective on the "crypto-world" and how it could prove an asset for corporate innovation.
October 18, 2022
5 minutes
Rayan Aebi

Buying land in the metaverse, trading company coins, selling branded NFTs — there is a lot happening in the crypto space. "Crypto" is used as a basket term for anything from underlying blockchains and protocols to crypto-currencies like bitcoin, which are traded as assets.

These assets, as we saw during the most recent crypto market crash, are inherently volatile. A notable example of this volatility is the catastrophic decline of LUNA and UST. Despite these volatile conditions, individuals and corporations continue to adopt crypto at an accelerating pace. As a corporate innovator, this may beg the question: is crypto relevant for our business?

Corporate innovation teams are constantly on the lookout for the latest developments. The "real work" involves building ventures and strong use cases around the technology. But as with any emerging technology, it can be hard to differentiate hype from an unproven technology with true business value.

We will highlight some of the most popular corporate applications of crypto. Then, we’ll look more closely at some of its limitations today. This should help innovation teams determine when and if it’s the right time to adopt crypto.

Key use cases of crypto and blockchain technology

There is a lot of excitement among companies and individuals to adopt crypto. By looking at use cases that have resulted from this momentum, we identified some of crypto’s most promising applications.

1 — Settlements 2.0

The value of blockchain technology lies in its decentralised nature. Centralisation often refers to a small number of organisations governing information (e.g. social media activity) and value flows (e.g. trading). Decentralisation gives power, transparency, and ownership back to its users.

With blockchain technology, a distributed network of computers agrees on the status of transactions, ownership, and even authenticity of objects. It does this leaving out middlemen like banks completely. This opens up a way for companies and individuals to make peer-to-peer transactions without third-party intervention.

For companies buying and selling goods and/or services, this means two things; the first is that adopting the blockchain to improve settlements can help companies avoid things like long payment clearance processes between international banks. With transactions settled on the blockchain, payments — domestic or international —  become almost instantaneous. For retail customers, large online transfers as payment for things like art, second-hand goods, or trips no longer rely on bank clearances. This eliminates obstacles like account freezing or even bank operating hours.

The second is that established companies may need to evaluate their own role as middlemen to avoid the risk of becoming obsolete. Organisations like banks, trading companies, and retail giants all act as intermediaries. For example, a large online retailer today may charge its small vendors a fee to ensure the safe completion of a transaction. With peer-to-peer transactions via the blockchain, vendors can trade with their customers directly — at lower cost and with no increased risk.

2 — Fraud prevention and traceability

Considering that the blockchain keeps an immutable record of all transactions, it helps companies prevent and spot fraud. Fraud often happens as a result of limited insight into customer or product backgrounds. Before transacting with a buyer or vendor, the blockchain gives companies transparency into things like customer records, product authenticity, and provenance. For example, as an agriculture trading company with complex networks of suppliers, the blockchain can offer more information about product quality, characteristics, and origin.

At scale, companies can also use smart contracts to automate transfers of value or information. The underlying code of the smart contract only executes a transfer or action once the conditions stated by the contract are met. The applications of smart contracts extend beyond just transactions.

With a growing ability to input real-life data using oracles, smart contracts help companies optimise processes like supply chain management or product quality control. This can help drive down costs, reduce wastage, and remove human error.

3 — Boosting growth metrics

Brands are constantly exploring new channels to boost user growth and retention. Web3 has opened up new channels to help companies do this. One way to achieve brand loyalty in Web3 is by rewarding customers with tokens. Tokens act as a store of value or currency and can be used as part of reward programmes. Customers can easily store them as future spending credit via a digital wallet.

Over the past two years, companies have also started to use NFTs to boost engagement metrics. This subset of tokens represents ownership over digital objects (images, artwork, or songs). For buyers, NFTs may come with exclusive perks like event invites or early-bird access to sales. Popular B2C brands like Nike and Adidas have all run successful NFT campaigns.

Limitations of crypto for corporate applications

As exciting as the future of crypto is, companies interested in dipping their toes into the technology need to consider its limitations, too. Adopting blockchain technology at scale can be challenging for several reasons.

1 — User Experience

The first limitation of blockchain-based products (e.g. dApps) is their user experience. To make purchases in a dApp using crypto, users often need to hold their own private keys. These keys may get lost or end up in the wrong hands, resulting in an irreversible loss of funds. Users also need to purchase the correct crypto-currencies on an exchange (using fiat money) before using them as payments.

Payments using (non-custodial) wallets are an example of the poor user experience the technology faces. Without improvements, user experience limitations could affect crypto’s adoption rate as well as the potential success of its corporate applications.

2 — Irreversibility

In its purest form, the blockchain faces the irreversibility of certain actions — which may impact its usability. Once a transaction to an account has been performed or a password has been lost, there is no third-party that can request the action be reversed. The nature of decentralised transactions implies a steep learning curve for the average user.

Despite this, many corporate crypto applications use custodial wallets. Meaning that fund or password recoverability is possible with the help of a third-party (a custodian). For applications using non-custodial wallets, some layers can be added on top of the blockchain to remove the need for private keys. This can help corporates build a Web2 experience on a Web3 application.

3 — Scalability & costs

When it comes to adopting blockchain technology as a large company, some of the most common concerns are around its scaling possibilities. To complete a transaction, blockchains like Ethereum — underlying most dApps today — used to rely on computational power provided by miners.

These miners or transaction validators are compensated per transaction. If the demand for their computational power is high (i.e. many transactions), transaction fees and energy demands increase significantly. Besides this, there are computational limits when it comes to the number of transactions that can be performed at once.

To remedy this problem, several blockchains are moving towards ‘proof-of-stake’ as a way to verify transactions. Ethereum finalised "The Merge" and moved towards proof-of-stake, thereby reducing the need for computational power per transaction and also reducing costs. However, it won't solve all scalability issues yet, such as the number of transactions per second.

Despite these limitations, blockchain technology already has plenty of inspiring business applications. To answer the question ‘to crypto or not to crypto?’, corporate innovators should assess both the predicted added value of blockchain technology and the impact of limitations around scalability and user experience. For corporates, the blockchain may be a promising tool to supplement technologies already in place.

Photo by Worldspectrum

Rayan Aebi

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