April 12, 2022 - 16 min read
There are more than 31 million small businesses in the U.S. alone, and, unlike large corporations, small businesses provide millions of business owners an opportunity to create an income on their own terms. Over the last two and a half decades, the internet has transformed how small businesses operate, from social media advertising to business listings and much, much more. As a major part of Web 3.0, blockchain technology is a cornerstone of the next generation of the internet, and, while its effects have mainly been confined to crypto-native businesses and large enterprises, blockchain is beginning to have a major impact on small businesses as well.
From improving supply chain management, accounting, insurance, cybersecurity, and IT management to increasing customer payment and financing options, the positive effects of blockchain on small businesses are starting to be felt far and wide. Though blockchain-based small business solutions are only in their infancy, the technology is showing great potential to help businesses increase efficiency, reduce waste and fraud, and even market themselves in new and innovative ways.
One of the first steps a small business can take to benefit from the blockchain industry is to begin accepting cryptocurrencies like Bitcoin as payment. As the number of cryptocurrency users grows, more and more want to use their crypto for everyday transactions, and allowing crypto payments could lead to more repeat customers who want to take advantage of the efficiency of paying directly as crypto.
This may be especially beneficial for businesses in urban areas where potential customers may be more tech-savvy and hence, more likely to own and use crypto on a regular basis.
At the current moment, taking payment in crypto can be somewhat complex, as not many merchant services platforms exist to facilitate retail crypto payments for small businesses. Businesses will generally need to identify and test a specialized merchant service, or, more likely, utilize their own wallet. In some situations, they may need to do both of these things.
Another benefit of taking payment in crypto is that cryptocurrency transactions are virtually irreversible. This prevents unfair credit or debit card chargebacks, which can have a particularly negative impact on small businesses. Instead of automatically being able to ask for a chargeback, the customer will need to directly contact the business to ask for reimbursement, which drastically decreases a customer’s ability to defraud the business or unfairly ask for a chargeback.
In addition to regular payments, small businesses can also offer rewards in crypto, which could be a great move for PR purposes and an effective way to attract both new and repeat customers. Blockchain applications themselves, such as Gyft, can also help small businesses administer loyalty programs, reducing headaches as well as reducing the potential for misuse or fraud.
While taking crypto as a form of payment is a step in the right direction, more adventurous businesses may want to consider utilizing a customer’s crypto as collateral for financing products and services. Crypto collateral can be used to secure loans to finance a wide array of products and services, including cars, electronics, and bills from service businesses like law, accounting, and marketing firms.
A customer’s crypto can be securely held in an escrow account until they fully repay their loan, and secured with a smart contract. If the customer fails to pay their loan installments, the crypto can be fully or partially liquidated and sent to the wallet address of the business.
In addition, if the value of the crypto falls below a certain threshold, the smart contract may require that the borrower send more crypto to the wallet or face liquidation or acceleration in their loan payments. This allows individuals to hold onto their crypto assets while providing a form of security guarantee to a business that they will be repaid in full.
Verifying the providence of goods and avoiding counterfeiting isn’t just important for big businesses, it’s also important for small businesses as well. For instance, just like Walmart, a local farmer’s market may want to be able to trace each fruit or vegetable back to the individual farm and field it was harvested from to ensure they only sell the highest quality products. In addition to farmer’s markets, local grocery stores, restaurants, and other food-related businesses can benefit from blockchain-based agriculture tracing.
In addition to general origin tracking, agricultural tracing can also be used to prevent the spread of contaminated produce, verify organic goods, and ensure product is only purchased from farms that have fair labor conditions. In addition to verifying whether produce is organic, blockchain ledgers can be used to help verify whether cattle were truly grass-fed or chickens were truly raised in a free-range manner.
Similarly to small businesses that sell food products, small businesses selling healthcare or beauty products (including both in-person stores and e-commerce businesses on platforms like Etsy) can use blockchain supply chain tracking to verify the quality, origin, and ethical sourcing of their products.
Other local businesses, such as local pharmacies, antique stores, or used-car dealerships can also use blockchain ledgers to verify the providence of their goods, partly by tracking their sales and transaction history in order to help ensure product quality and truth in advertising.
For example, the company Carnomaly has developed a blockchain-based vehicle reporting system called CarChain which creates an immutable ledger of a vehicle’s history, including accident changes in ownership, inspection history odometer discrepancies, failed emission tests, flood lemon status, status, and fleet history.
CarChain works in much the same way as popular vehicle history reporting service CarFax, but unlike CarFax, records are much less susceptible to loss, deletion, or manipulation. Services like CarChain can help local used car dealerships and individual sellers alike improve their trust with buyers, making the transaction process easier and more transparent.
Local art galleries and antique stores can also utilize blockchain solutions to help verify the art or antiques they’re selling are truly legitimate. While contemporary artists can create NFTs to verify their physical artwork, it can be more difficult to use blockchain to verify historic artwork or antiques, however, blockchain solutions are coming onto the market.
One company, IOST, partnered with Grimm’s Antiques, a China-based antiques dealer, to help verify and create records of antiques, by including appraisal and verification records on a secure blockchain to verify transactions and prevent forgeries. Another company, Verisart, uses blockchain to help artists and galleries verify artwork through the creation of NFTs, also with the aim of preventing forgeries.
For small businesses, keeping accurate and timely financial records can be tough, particularly if the business does not have an in-house bookkeeper or accountant. In addition, many small businesses face serious fraud and embezzlement from longtime employees, often the ones that they trust the most. By creating an immutable ledger of all transactions which is nearly impossible to change, blockchain can help create highly-accurate, highly-secure, and tamper-proof accounting records for businesses of all sizes.
A variety of companies have already introduced blockchain accounting software solutions, though they are often in the beta stage. However, only a few companies have created user-friendly technology appropriate for small businesses. One company, SARA technologies, is already offering unique blockchain accounting solutions for businesses, with a focus on features like immutable timestamps and ease of auditing. The company believes that its technology can also help companies stay legally compliant and ease the reconciliation process.
Due to the immutability and security of blockchain technology, blockchain-based accounting can also potentially make it easier for businesses to verify their financials when obtaining loans or equity investments, and may also make it easier for owners to verify their financials when selling part or all of their business.
Local service-based companies, like law firms, real estate brokerages, title companies, and marketing agencies often issue complex contracts to clients, some of which may need to be witnessed or notarized, which can add extra time and expense. In addition, contracts and other important documents can often get lost, potentially leading to contractual and legal issues.
Blockchain can provide useful solutions to many of these problems, and, while blockchain ledgers may not necessarily reduce document complexity or notarization requirements, they can provide immutable proof that a document was signed by a certain party at a certain time, as well as a secure method of recording and storing documents so they cannot be altered at a later date. This can increase trust between multiple parties, and can easily facilitate the sales of cars, homes, or the payment of legal or marketing fees. All relevant parties must reach a consensus for a block, and, in turn, the contract, to be validated, making it far more difficult for a party to renege on their obligations later.
In addition to being used in B2B and B2C transactions, blockchain ledgers can also be used within small businesses, particularly in areas such as employment contracts, or in types of businesses, such as medical practices and law firms, where there is a legal obligation to securely record data. Companies like IBM specialize in providing blockchain smart contract solutions for companies of all sizes, and IBM has a cloud documentation system (IBM Cloud Docs) specifically designed to allow businesses to deploy smart contracts with as little friction as possible.
However, smart contracts aren’t just for service businesses or large sales contracts; they can also be used for much smaller transactions. For example, Cryptobike is a decentralized, Blockchain-powered bike-sharing platform that allows customers to rent out bikes on an hourly basis. Similar applications of smart contracts could be used for buying or renting all types of products, such as for local canoe, car, boat, or jet ski rental services.
Getting quality insurance, and getting their claims paid on time is often a challenge for small businesses, but blockchain may be able to help. Many insurance companies, both large and small, are looking towards blockchain to make both the sign-up and pay-out process easier for clients, whether individuals or small businesses.
For example, the fast-growing insurance company Lemonade utilizes an AI and blockchain-powered bot, called Maya, that allows customers to sign up for insurance in just minutes, in many cases, it also allows customers to get payouts within minutes as well.
In addition to insurance that’s powered by blockchain, small businesses can also take a further leap to purchase DeFi insurance, which may be less expensive and even faster to sign up for than traditional insurance that simply uses blockchain as a tool. Right now, these DeFi insurance companies are somewhat limited in the type of insurance they offer, but the scope of DeFi insurance policies is expected to increase greatly in the coming months and years.
For example, DeFi insurance company Arbol offers parametric crop insurance that can allow farmers both large and small to insure themselves against a wide variety of situations, including too much or too little rainfall, storms, wind speeds, and other weather issues that can negatively impact agricultural production. On one hand, insurance investors purchase tokens that fund the payouts, which are done via smart contracts, while, on the other hand, clients pay for insurance policies to insure themselves against weather events. Payouts generally happen within hours, while disputes are managed by a DeFi escrow and arbitration service.
Blockchain can help small businesses get insurance, but it can also help small insurance companies issue insurance more efficiently. While many insurance-related small businesses are simply local affiliates or franchises of national insurance companies, there are also many independent small insurance companies that offer their own policies. These companies can themselves utilize smart contracts to bring more efficiency to the insurance process. They may also be able to use blockchain to insure themselves by getting blockchain-powered reinsurance.
It should also be mentioned that small businesses using crypto for transactions may also want to insure themselves against wallet hacks and other potential crypto mishaps. There are a variety of companies that offer services like this, including the popular crypto insurer Nexus, which specifically offers insurance policies for ethereum wallet hacks. Another popular crypto insurance company, Unslashed, offers insurance for centralized exchange failures, smart contract hacks, crypto slashing, and other common ways that users can experience losses on the crypto market.
Cybersecurity and hacking are massive issues for small businesses. According to consulting giant Accenture, an estimated 43% of cyberattacks target small businesses, but only 14% of these businesses are prepared to defend themselves. Insurance company Hiscox estimates the average cost of a cyberattack at $200,000, which is enough to put many small companies out of business.
Often, access to company computer systems or accounts is obtained through guessing passwords or via innocent-seeming emails or website pop-ups. Fortunately, blockchain has the ability to help companies manage employees’ digital identities.
For example, blockchain password managers based on public-key cryptography generate a specific private key, which is practically impossible to determine using conventional hacking or de-encryption methods. One popular blockchain password management protocol, SASSPASS, is specifically designed for enterprises and allows interfacing with major websites, backup and restore capabilities for lost devices, sharing access with team members without sharing passwords, and biometric identification for ease of use. The SASSPASS app is currently available for free on the Apple App Store as well as on the Google Play Store.
Blockchain-based cloud-storage is another important IT application of blockchain for small businesses. Current cloud storage can be both expensive, especially for small businesses that deal with high volumes of data, such as video production companies or small software or IT firms. Security issues can also be a concern for businesses that deal with confidential client data, like accounting firms, law firms, or medical offices. However, blockchain is poised to solve these issues with decentralized cloud storage solutions.
For example, the company Sia offers encrypted, distributed cloud storage across a decentralized network. Customers control their private encryption keys and retain full ownership over their data. Unlike traditional storage providers, neither Sia nor its storage providers can access a client’s data. The company claims that it’s services cost approximately 90% less than current cloud storage providers while providing a far higher level of security.
Raising capital, particularly in the form of equity, has always been a challenge for small businesses. Unlike massive corporations, there are no investment banks or IPO options for small local businesses. Blockchain provides an interesting and efficient solution for small businesses in the form of initial token offerings (ITOs), which can be freely traded on exchanges.
Raising equity in this way allows people across the world to invest in profitable local businesses. In some situations, the token simply represents a form of equity in the company, while in other cases, it may also have a certain utility, such as allowing customers to pay the company at a reduced rate, or may even allow some form of governance or say in the company’s operations.
Token offerings, however, may have legal implications for small businesses, so it’s important to check with a lawyer who specializes in blockchain and tokenization law before setting up an initial token offering for your small business. A good lawyer in this area may be challenging to find, but it’s better to be safe than sorry, as a poorly-done token offering could result in significant fines or lawsuits from the SEC or even investors in the token.
In contrast to raising equity capital, blockchain can also help small companies get lower-cost loans. Many lenders are already beginning to utilize blockchain technology to assist with the lending process. In addition, several members of U.S. Congress have introduced a bipartisan act, the Blockchain Solutions for Small Businesses Act, which would improve the Small Business Administration’s (SBA) operational efficiency using blockchain technology.
To provide context, the SBA is the largest small business lending institution in the U.S., having issued more than $44 billion in small business loans in 2021 alone. While the SBA does not issue loans directly, it guarantees loans issued by private lenders, providing them direct compensation if a borrower defaults.
Despite its many successes, the SBA lending process has often been regarded as inefficient and prone to fraud. For instance, numerous instances of fraud were reported in the wake of the SBA’s massive Paycheck Protection Program (PPP), which was intended to keep small business employees employed during the height of the COVID-19 crisis in 2020.
In one example, a small business owner utilized his PPP loan to purchase a Lamborghini. Other controversies arose when highly profitable businesses were awarded loans they did not need, such as when Ruth’s Chris steakhouse was given a $20 million PPP loan (which it later returned) despite apparently not needing it. Blockchain technology would ideally help prevent the likelihood of situations like this, by potentially tracking both the issuance and the ultimate use of loan funds. Ideally, this would increase the amount of funds available for small businesses that actually need financing and are willing to use it for productive economic purposes.
In addition to traditional small businesses lenders and government agencies utilizing blockchain to make the borrowing process easier, there are also crypto-backed small business loan options on the market for small business owners who are also investors in cryptocurrency.
One company, SALT Finance, offers crypto-backed business loans up to 70% LTV at a 9.99% interest rate, with significantly lower-interest loans for those who decided to hold and stake the platforms’ native SALT token. The company specializes in offering loans to crypto mining businesses but can provide loans of more than $1 million to businesses in any industry. Unlike most small business lenders, SALT Finance does not require credit checks and allows users to get payouts in both crypto and stablecoins. The company is also launching a credit card for borrowers to make purchases even easier.
Another company, Figure, is also revolutionizing the lending space with blockchain. While it doesn’t yet specifically focus on small business lending, it does offer home mortgages, home equity lines of credit, and personal loans, the last two of which can easily be used for business funding purposes.
NFTs are incredibly popular, with some famous NFTs selling for hundreds of thousands or millions of dollars. However, you don’t need a million dollar NFT to harness the power of NFTs for your small business. Small businesses can benefit from the NFT phenomenon in a variety of ways. NFTs can be used for all kinds of small businesses, but may be most useful for creative businesses, such as art galleries or music venues.
One of the most exciting ways that small businesses can benefit from NFTs is by partnering with local artists in order to create NFT collections that can be sponsored by the business and be sold to benefit local charities. For example, a hotel, restaurant, or even a coffee shop could hire a local artist to create an NFT collection based on the wildlife or cityscapes of the local area, and raffle these NFTs off in a charity auction in order to raise awareness for both the charity and the business itself.
Likewise, local music venues may be able to partner with musicians to make their songs, or even live recordings of their songs, into NFTs, which can promote both the venue and the artist alike. Collectable art or photography based NFTs can also be utilized by local organizations such as chambers of commerce in order to raise money or promote tourism.
In addition to creating new and unique NFTs, local businesses and organizations can also buy NFTs from either established or new collections and raffle these off in promotional events. For instance, a group of local businesses could pool money together to buy an expensive NFT from a well-known collection, which could bring more attention to the promotion than NFTs by lesser-known artists.
Of course, NFTs can also be used for more practical purposes, such as to serve as tamper-free tickets to local events, coupons, or loyalty gift cards. However, businesses should probably be somewhat careful to avoid only using NFTs for these purposes, as it may be a turn off for those who aren’t as versed in the world of blockchain.
Instead of being just confined to use by niche crypto enthusiasts, blockchain is breaking out of its shell and is being used in applications across almost every industry to bring greater efficiency, reduce fraud, and new types of solutions for longtime problems. While it initially seemed that blockchain technology might only have a positive impact on large enterprises, in many situations, the positive applications of blockchain can help small businesses, too.
Though the industry is still in its infancy, things like crypto payments, blockchain accounting, and using blockchain to raise equity or get loans will likely only become more popular as blockchain becomes mainstream. Overall, blockchain and small business have a bright future together, and only time will tell the true innovations and solutions that this combination will bring.
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