When starting a business, especially one based upon new technology, it is essential to engage a professional consultant in order to reach your goals more sensibly. Stanislav Sheliakin, with impressive experience in business management and technology consulting for Big Four firms and Applicature, is supporting new businesses on their way to success.
Blockchain technology is still quite young, and needs time and knowledge before it can be fully implemented into all spheres of life. Given that blockchain adoption by just one company can be costly, we questioned our business expert about blockchain-based business consortiums and their creation.
Stan, can you please tell us — what is a business consortium?
Basically, it is not rocket science: a business consortium is cooperation between two or more separate companies in order to reach one goal. These two business entities agree on the statement that their cooperation is regulated by fixed, negotiated rules. Inside the consortium, they exchange information, provide financial support to each other, etc. So, to put it briefly, a business consortium is a cooperation agreement between two or more separate legal entities working to achieve a common goal. Sometimes, these are called “alliances,” but the difference between alliances and consortiums is considerable. Claiming an alliance, companies don’t have to draw up a contract to regulate the cooperation process. In consortiums, companies negotiate the conditions of the contract and sign up for them.
In terms of participation, business consortiums act as a separate service provider or goods supplier; however, in reality, this is a collaboration between two companies that share responsibilities.
One of the biggest consortium blockchains is R3 (R3CEV LLC), which connects more than 200 companies with one goal: to develop and empower distributed-ledger use in the financial sphere.
You were right — not rocket science! So, do business consortiums need blockchain, and if so, why?
The answer is definitely YES! Business consortiums need blockchain to enhance transparency within the agreement. What do I mean by “within the agreement”? There are two options for blockchain adoption in business: the public blockchain and the sidechain.
The public blockchain is time- and money-consuming, so it will result in a beneficial investment only in cases of simple transactions and smart contracts. The sidechain, however, is a good option for business solutions. It’s important to mention that within one company, blockchain implementation will not show all of its advantages; yet alliances, consortiums, and various types of cooperating entities can be sure of the efficacy of sidechain implementation in their businesses.
Given that the public blockchain doesn’t fit in many business models due to its costs and the absence of KYC, sidechain for consortiums is a decision that will ensure workflow transparency and build trust between entities.
Moreover, in huge companies with offices all over the world, there is a real threat of fraud from the side of the middle management or suppliers. In this case, sidechain will fully deploy its main advantages: security and transparency.
How are two or more companies going to run a blockchain?
In terms of consortiums, when two or more companies’ cooperation is regulated by a legal agreement, they will create their own micro-blockchain. Each entity will operate its own node, and will be able to execute secure transactions within their blockchain. Another reason blockchain will benefit the workflow of business consortiums is smart contracts.
What are the benefits of blockchain adoption in business consortiums?
In addition to the trust enabled by completely transparent workflow and traceable transactions, the blockchain solution eliminates the need for numerous accountants and lawyers to provide a legal background for cooperation. Additionally, no intermediary bank will be needed for consortium support due to fewer transactions of real values. The cooperation process will become not only simpler, but more trustworthy, as well.
One more advantage worthy of consideration is the absence of transaction fees. In consortiums with an agreement drawn up, companies set the custodial account to contribute money and assign it to different needs.
All in all, the implementation of blockchain in business consortiums opens the way for all of its features and benefits, giving businesses the maximum in terms of advantages.
Additionally, on the public blockchain, a transaction sent to a “dirty” wallet is inevitably considered money laundering. However, the sidechain works only for companies that have a legal agreement; therefore, there are no serious consequences in case of any mistake.
In your opinion, why are consortiums important for modern business?
I think that in modern times, despite the era of monopolization, a single entity is not able to solve issues on the global scale. Separate companies don’t have enough resources to fight giants in the market. For this, they have to form consortiums, alliances, etc. in order to offer their solutions to the market.
Apple, Samsung, and Foxconn are bright examples of consortiums. They remain separate companies working on innovation in mobile technologies; however, they provide each other with some services and elements in order to reach a higher goal in the same field. Basically, Apple is the taker in this consortium due to the screens provided by Samsung and processors developed by Foxconn, though Samsung also uses Foxconn’s processors in its devices.
All in all, consortiums are extremely important for global business development — just as blockchain implementation is important for optimizing workflow. Moreover, blockchain consortiums provide faster and cheaper transactions, allowing businesses to improve and accelerate the work process.
Because the public blockchain is a trustless network that doesn’t allow any mistakes, and transferring money to an incorrect wallet will be considered money laundering, this brings us to the need for finding a compromise: the sidechain. This separate and decentralized ledger, closed to unaccessed nodes, will put all of its beneficial features toward the success of consortiums.
Among the advantages of adopting blockchain in business consortiums, there are fast transactions, the absence of transaction fees, and workflow automatization with smart contracts. There is no need for intermediaries, and consequently, no risk. But what distinguishes a private blockchain from the public one is that it functions as a micro-world made up exclusively of nodes that participate in the agreement. Usually, private blockchains are created by several companies that share a common purpose.