This blog was last updated on September 23, 2019

There is much speculation about the potential of blockchain in the context of B2B automation.

This speculation normally focuses on open or public blockchains, which are distributed databases where different types of transactions can be securely recorded and transparently verified by all parties without depending on a trusted third party. The scheme was first used by crypto-currency Bitcoin to remove the need for banks or other intermediaries while also solving fundamental problems such as “double spend”. More ‘closed’ blockchain implementations can also have benefits, but the full force of this innovation comes from the public model.

The distributed nature of blockchain avoids central points of vulnerability (e.g. to hackers) and failure, both critical to modern B2B applications. The strong security and ability to easily verify transactions by all parties is embedded in the design, allowing high and transparent trust in the system. Still, the most interesting aspect of blockchain is that it removes the need for a pre-trusted third party.

No matter if we talk about payments, financing or any other similar process in trade, they all require complex chains of trust to be established among parties and intermediaries. Blockchain can obviate many of these intermediaries, thereby reducing complexity and risk.

Governments interested in B2B transactions are also potential beneficiaries. A full implementation of blockchain for B2B transactions could e.g. enhance tax controls, avoiding double taxation and ultimately automate tax processing. This is especially interesting in international trade where establishing trust between parties and authorities is notoriously complex and costly.

Despite the promising benefits we must remember that the power of public blockchains comes at a cost. Exchanging a single trusted third party with many non-trusted parties increases complexity, resulting in technical challenges such as comparatively low throughput, high latency and significant bandwidth and size issues. There are many consortia-type initiatives around blockchain, but we need a broader debate to ensure that the key benefits become available where they make most sense.