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F for Friction: What blockchain can solve

Anna Flach 12 February 2020

We live in a connected, globalised and complex world. We can do business with anyone, anywhere, at any time around the world. Yet, transactions are often inefficient, slow, expensive and vulnerable. The global market is full of complexities making the transfer of ownership or value riskier, slower and more expensive. What if there was a better way to transact?
Blockchain technology can help to redefine interactions as we know them. Although, blockchain is not a silver bullet and solution to all problems, there are some of the frictions points blockchain can begin to solve.

Information friction

Information friction occurs when market participants are not able to receive the full amount of data to make the best possible decisions. It can be divided into three types:

  1. Unbalanced information
    When network participants do not have access to the same information, it can create a disproportion in information in the group. It can also mean incorrect or inconsistent information which can lead to delays and errors. For example, a faulty bank sort code in a financial transaction can route the transaction to the wrong address and it can take a significant amount of time to resolve.
  2. Inaccessible information
    They say data is the new oil. Data brings immense value to businesses, however it is often withheld by challenges in storing, collecting and analysing the information. It is also a liability: data leaks, hacks, GDPR breaches can easily destroy a company’s trust and reputation. Hence, information within organizations which we could easily leverage remains, even if somewhat safe, inaccessible. For example, a collection of medical information could aid the development of treatments and prevention of illnesses through reliable insights.
  3. Cyber and privacy risks
    Cyber attacks, identity theft, privacy concerns – none of these are a novelty. We incur additional costs and inconveniences as we lack the capability to protect our data. Using blockchain technology and digital signatures can help us develop better information verification and decrease information risk. It does so by establishing more effective ways of using public-key infrastructure, removing shared secrets, like passwords which often constitute a weak link.

Interaction friction

Interaction friction occurs when a transaction is too costly, slow or complex to complete between the two parties. This is often due to the number of intermediaries involved in a single value transfer.
Blockchain’s peer-to-peer infrastructure can help to replace the numerous of middlemen in a transaction with technology, consequently making them cheaper and faster. This can also help to reduce the number of errors within the workflow as there would be fewer touchpoints.

Innovation friction

Innovation friction occurs when an organisation fails to respond to changing internal or external conditions in a timely manner. It can be broken down to:

  1. Institutional inertiaWhen a company’s internal structure, legacy systems or archaic workflows halter the company from responding to market changes. We often see this in the current banking world where inefficient legacy systems find it hard to keep up with the efficiencies needed today. To battle institutional inertia, compelling conversations need to start about replacing the current infrastructure. Secondly, once the willingness to innovate is established we can consider blockchain, as a tool to more directly model transaction flows through organizations and raise performance.
  2. Restrictive regulationsWhile regulations are usually designed to control market behaviour and protect consumers, they often stand in the way of innovation. This is especially problematic with the rising number of regulations from both national and international institutions. Automation and transparency through blockchain technology can help to ease these crucial tasks and establish a single source of truth to augment reporting requirements.
  3. Rapid and massive change
    Technological advancement, changing consumer expectations and global challenges have led to increased business uncertainty. Entire business models are shifting, while both smaller and larger organisations aim to keep pace. Using blockchain technology can help to create new and more efficient business models and lead the market.

Key takeaways

Blockchain technology removes friction in existing processes by providing an infrastructure that shares information in a secure and efficient way. It also smooths the flow of transactions by enabling direct connections. Last, but not least, blockchain technology opens the door for better business and market models.

If you want to remove friction in your business, get in touch.

This article was inspired by IBM’s Blockchain for Dummies e-book and combined with insights from our experts at Qadre.

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