Despite of huge hype about blockchain technology among start-ups and venture capitalists I was asked many times: what could be valid business goals for blockchain projects? The answer is simple – any blockchain project should profit its users by improving their opportunities and capabilities to make transactions.
If we look at profitability as return on capital then blockchain technology could increase profits for its users in five ways, by
reducing transaction costs;
increasing revenues due to increased amount of transactions;
creating new revenue streams due to lowered transaction costs;
reducing level of required capital;
increasing capital usage or employability.
Business metrics 1: Reduced transactional costs
Blockchain technology already shows us that it is capable to replace humans with algorithms to store, audit, trigger and process transactions. Blockchain potentially could make savings on due diligence, escrow accounts, storing and transferring assets, processing claim, avoiding fraud and human mistakes. Software could partly or fully replace work of auditor, lawyer, custodian (or trustee), insurer and banker before transaction is made, during processing transaction and after transaction is made. These costs are measurable. For example if custodian takes up to 0.1% from loan sales that asset manager buys from loan originators and if asset manager buys one billion EUR worth consumer loans portfolio then it spends up to one million EUR for custodian services. So what blockchain start-up should do? It should look on their users business cases and evaluate what transactions costs and by how much it could reduce them for their clients by implementing blockchain solution. I believe that blockchain can reduce transaction costs in payments, finance, insurance, trade, manufacturing, servicing, leasing (or renting).
Business metrics 2: Increased transactions volume
Not only blockchain technology can reduce costs but also time to settle transaction. It may create impact on trade volume of particular asset as it could create opportunity to make more trades of particular asset in a given time period. For example, in Wall Street to settle security or bond trade on average takes 3 days. If there are 251 working days then at maximum brokers can trade o