Analysis: Is SMEs suitable for blockchain technology?

Source: Medium

Translation: First Class (First.VIP)

Blockchain technology has always been concerned by countries. China has always expressed its affirmation of blockchain technology and must vigorously develop blockchain technology. When using blockchain technology, many companies lacked a clear roadmap and therefore took a lot of detours.

Multinational companies such as Wal-Mart, MasterCard, and IBM are deploying blockchain technology applications. These multinational companies have technical and financial support. However, for SMEs, funding and technical resources are limited. So, is medium and small suitable for blockchain technology?

Current challenges for SMEs

SMEs are the backbone of national economies. In Europe alone, there are approximately 21 million SMEs. These 21 million companies are providing a source of income for approximately 90 million people on the African continent. In the United States, 30 million SMEs provide local employment for two-thirds. Although SMEs are the backbone of economic development, they still face many challenges, mainly for four difficulties:

· It is difficult to find investors;

· It is difficult to expand the scale of operations;

· It is difficult to simplify the handling of financial issues;

· It is difficult to handle other services such as renting conveniently.

Since the 2008 economic crisis, banks in various countries have reduced their willingness to lend to SMEs. Most SMEs are bankrupt in three years of operation, of which 30% are due to lack of funds. The International Finance Corporation (IFC) estimates that the financing of 650 million companies or 40% of micro and small and medium-sized enterprises in developing countries has not reached 5.2 trillion US dollars per year. East Asia and the Pacific accounted for the largest share of the global financial gap, at 46%, followed by Latin America and the Caribbean, with a share of 23%, followed by Europe and Central Asia, with a share of 15%.

Why should SMEs adopt blockchain technology?

1) Reduce costs

The resources of SMEs are usually limited. Compared with large companies, SMEs must reduce operating costs.

One of the advantages of the blockchain is that it eliminates the need for third parties in the business, especially in value transactions. These intermediaries may be banks, lawyers, brokers or other intermediaries who ensure that transactions between SMEs and others are safe and secure. By using blockchain technology, SMBs can streamline transaction processes without having to go through third parties, thereby reducing transaction costs and easily competing with large companies.

In some cases, intermediaries may not be avoided, and SMEs need a trusted party to regulate transactions with business partners. Therefore, SME decision makers need to assess the cost comparisons of retaining intermediaries or leveraging blockchain technology. However, in the long run, the transfer to blockchain technology is more beneficial.

2) Reduce counterfeit products

With the development of globalization, the world has become an extended market. Competition has become more intense, and some companies sometimes adopt unethical practices for maximizing profits. Therefore, it is necessary to track the supply chain.

As a distributed ledger technology, blockchain provides a perfect solution for identifying counterfeit products. SMEs that comply with the World Fair Trade Organization policy can easily trace the source of the product and can trade through the blockchain distributed account. This will also help SMEs build trust with their customers.

3) Convenient tracking of assets

The blockchain distributed ledger consists of numeric codes. A unique hash value is assigned to each digital asset in the blockchain. This allows SMBs to track products by using hash values. For example, blockchain can help SMEs effectively track the food distribution supply chain. Since the amount of food the farmer provides to the end user is quantifiable, it can be easily tracked through the blockchain. Therefore, SMEs conveniently use digitally represented assets that need to be tracked.

4) Reduce fraud

As a decentralized ledger, the recorded information/data cannot be tampered with. The system does not allow human error. Therefore, when transactions are made between peer nodes, verification is performed by nodes in the network. The peer must determine the accuracy of the data when verifying the transaction. It can help SMEs avoid any commercial forgery or fraud.

Factors that may hinder adoption

1) Scalability

For small and medium-sized fintech startups, increasing the transaction rate is critical. The scalability of public blockchains such as Bitcoin and Ethereum is limited. The Bitcoin blockchain can perform about 7 transactions per second, while Ethereum can perform about 15 transactions per second. However, Visa or Mastercard payment giants can complete 2000-5000 transactions per second. Alipay is faster.

The huge difference in these numbers may make it possible to consider whether blockchain technology is feasible. Although some blockchain projects for the payment sector have also improved scalability, the transaction speed is still not comparable to the current centralized payment company. In addition to transaction volume and transaction speed, there is also a need to consider delays on the blockchain network.

2) Relatively large investment funds/resources

Blockchain technology is a decentralized network that requires node maintenance and security. The more nodes, the higher the security. In order to ensure the security of the network, resources must be invested to maintain the network and update the protocol. This is also a cost issue for SMEs to consider in their private or alliance chains.

to sum up

In the past few years, blockchain technology has developed rapidly. This DLT technology can solve many problems faced by SMEs. This technology can help SMEs in the fields of agriculture, insurance, health care, technology and utilities. This technology has increased the advantages of cost efficiency and transparency for SMEs. However, SMEs who want to adopt blockchain technology must pay attention to assessing their own advantages and disadvantages. If you don't need to consider the payment problem, and the funds are sufficient, then in the long run, the use of blockchain technology is beneficial.

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