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5 Biggest challenges in the implementation of Blockchain-based ERP systems

Blockchain technology is being implemented in a large number of industries from supply chain, IT services to financial services. Today, blockchain’s distributed ledger technology is one of the greatest innovations. It is likely to take a substantial amount of time before global adoption. Nonetheless, technologists and leading businesses have realized that the blockchain technology can play a big role in areas like logistics, supply chain, and production that typically falls under the ERP systems domain.

It is foreseen that the blockchain application in ERP will help businesses in reducing the recall requirements. It has the ability to share the production diary among all original equipment manufacturers (OEM). Therefore, it is possible to accurately and promptly recall the affected products. All manufacturers in the ecosystem can strictly control the flow of goods and payment transactions. In this manner,it helps in improving transaction-processing speed and minimizes risks.

In financial companies, blockchain with ERP minimizes recording errors like duplicate financial transactions and make payments quicker. Transparency and reliability in transactions are the major benefits of using blockchain with ERP. However, there are several challenges associated with blockchain adoption that must be mitigated before its widespread integration can happen.

Like many futuristic business leaders, if you too aspire to implement blockchain in ERP systems for seamless results, you must overcome these top 5 challenges beforehand.

      1.Managing growing number of users

Currently, blockchain technology is facing problems in effectively supporting a large number of users on a network. Therefore, to match the high user base, blockchain will need to have better scalability. The leading blockchain technology-based networks Bitcoin and Ethereum get slower in transaction processes. Moreover, higher fees are charged per transaction because of a substantial rise in users.

There should be in-depth research about how to upgrade blockchain to improve its user management capability. It will take a significant amount of time to develop such capacity to handle the increasing growth in users. Further, thoroughly vetted and verified scaling methods are important before implementation into the ledgers. Thus, one should consider the scalability before connecting blockchain with ERP systems on a wide scale.

      2.Illegal usage and exposure

Blockchain technology is mostly used in bitcoin, altcoins, etc that are illegal in some countries. In a paper titled ‘A Survey on the Security of Blockchain Systems’ published through the Cornell University Library, a team of researchers found that criminals use cryptocurrencies to purchase restricted materials on online marketplaces. Likewise, they use it as a tool for money laundering and payment methods for ransomware.

Nevertheless, these illegal activities are a result of people’s applications of digital currencies in global trade and can be carried out with approved currency too. However, for blockchain technology to be accepted by the public, it must restrict its usage in such scenarios.

    3.Security and privacy

In their initial design, developers made blockchains to be publicly visible. The Bitcoin blockchain is designed to be accessible to all those who have made a transaction on the network. In such cases of bitcoin and other cryptocurrencies, public visibility is an important feature.

However, for governments and companies, this exposure creates a number of concerns. Most of the ERP systems in companies need to protect and restrict access to their data for a myriad of reasons. Therefore, blockchain technology cannot work in spaces with sensitive data until developers find out the resolution for this challenge.

As a solution to public visibility, one can customize blockchain to meet the needs and specifications of the specific ERP system. A blockchain can be made restricted to others. This means that people can only access parts of the blockchain which are relevant to their tasks.

Creating such custom blockchains takes a sizable amount of expertise and planning. Today, security and privacy is the prime concern of ERP systems. Therefore, a clear and secure blockchain-based ERP model with limited and customizable data access should be developed to tackle such issues.

    4.Unsustainable energy consumption

The Bitcoin network and Ethereum network both use the proof-of-work(PoW)algorithm to validate transactions made on the blockchains. It is most popular mechanism for blockchain. It requires the computation of ultra-complex mathematical problems to verify and process transactions and to secure the network.

Therefore, combined with ERP, blockchain systems will consume extra power to run the computers and a considerable amount of infrastructure will be required for cooling and maintaining the systems. According to a recent finding, the miners who work to validate transactions in the Bitcoin blockchain consume about 0.2 percent of the global electricity total per year.

The solution over the high-energy consumption problem is to use Proof-of-stake algorithm instead of Proof-of-work (PoW). This will also help the implementation of blockchain in ERP to operate with sustainable energy consumption.Still, the shift from PoW to PoS has to be compatible with current systems and run as per the output requirements.

      5.The need for industry standards

Designing a standard blockchain-ERP system that is confidential and secure is a big task. Thus, companies need to agree on standards and practices for seamless connectivity through such blockchain-based ERP models. Moreover, the user must overcome the slower processing rate to avoid interaction failure between IoT devices and other systems.

With some proof of concepts, global industries should adopt a common standard and give it the time to convert and become compatible. These standards will play an important role in ensuring scalability and interoperability between multiple blockchain implementations.

It will also help in reducing the risk of a fragmented ecosystem. Further, standards could improve understanding of this complex technology and help progress the market. Moreover, there are potential opportunities for standards to play a role in sectors where provenance tracking is important.

Conclusion:

In the heart of today’s business world, where people’s lives are enmeshed with digital technologies, the blockchain powered ERP system can be a breakthrough product. ERP providers are slowly realizing the positive impact blockchain technology could make. But, it needs to tackle the above challenges effectively in order to emerge as prime support for ERP systems.

Blockchain enables frictionless functioning of businesses in a unified ecosystem and allows them to control their resources and growth far better. Experts say that blockchain could potentially transform how modern businesses operate. Currently, ERP software are focused on individual enterprises, while blockchain integration adds more flexibility, but security and privacy should not be compromised.

 

By Mayur Shewale (Assistant Writer)