Business Editor Chloe Pryce catches up with blockchain expert and author John Palfreyman and discusses the current and future applications of the technology.
Most of us have heard of blockchain, but few of us actually understand what it is or the value it can bestow on organisations. A common misconception of blockchain is that it is just the same as Bitcoin. In reality, Bitcoin is just one use of blockchain. There are many other exciting uses, some of which may come to fruition in 2020.
Intrigued by the potential for blockchain in the future, I caught up with John Palfreyman, author of Business Blockchain: Unlocking Transformational Potential and ex-IBM Director of blockchain, to find out more.
The building blocks
Satoshi Nakamoto (2008) developed an electronic payment system based on cryptographic proof instead of trust. This enables two parties to transact with each other, without necessarily knowing each other, and crucially without the need for a trusted third party – an intermediary between the buyer and seller. For example, a bank or PayPal. Instead of one party holding the information about the transaction, the transaction is validated by everyone across the network. Therefore, it creates a decentralised, peer-to-peer system which prevents one central authority managing all the information. This is blockchain.
Individuals have analysed the key characteristics of blockchain and realised that it can be applied in a variety of different industries with many use cases, besides being used solely in finance (bitcoin). For example, it has been or is being applied in industries such as jewellery, automobiles, insurance, real estate and many more.
Therefore, it is worthwhile understanding the key building blocks of blockchain which have facilitated its application to go further than the world of finance and banking. These can be summarised as follows:
- Distributed ledger: All parties use one, shared single source of truth as opposed to separate systems. This creates a distributed ledger, which is synchronised across networks and importantly is viewed in real-time.
- Chronological and timestamped: Each transaction is logged and stored in chronological order and are timestamped, which provides an audit trail of the underlying transaction.
- Cryptographic proof: Any data on a blockchain is immutable and therefore becomes permanent and cannot be altered (without being made visible).
- Consensus-based: All parties have to agree that a transaction is valid before it can be executed.
These characteristics ultimately increase trust and efficiencies across the network. Moreover, and importantly, these characteristics are enabling different parties to interact with each other in new ways that were previously not possible.
To understand the technical parts of blockchain in more detail, I would suggest that you read Nakamoto’s 2008 paper.
A look at blockchain in 2018/19
2018 and 2019 saw some exciting proof points for blockchain – several companies showed us blockchain’s true capabilities. However there still remained a lot of confusion regarding what blockchain could and could not do and the key differences between business blockchain and bitcoin. This continued confusion saw blockchain slip into what Gartner’s hype cycle terms the ‘trough of disillusionment’ whereby organisations’ failed experiments with blockchain caused frustration and unrealised business value – although this was often due to blockchain being used for the wrong use case.
Regardless, several companies got it right. IBM and Maersk jointly developed TradeLens, a blockchain-enabled shipping solution designed to promote more efficient and secure global trade, supporting transparency. The platform allows multiple trading partners to collaborate by establishing a single shared view of a transaction, as opposed to fragmented views for different partners. Real-time access to shipping data and documents allows more efficient interaction between partners.
Blockchain is also being used to improve food safety. Walmart has been working with IBM using their Food Trust solution to transform their supply chain. Moving away from the manual supply chain processes, blockchain will make the supply chain more traceable, transparent and fully digital. Should a food safety issue occur, the new technology would make it easier and faster to track down the root of the problem. Transaction partners including producers, suppliers, manufacturers and retailers are able to share food information, creating a transparent and trustworthy global food supply chain. Food system data is then shared and recorded permanently, allowing increased food safety, freshness and minimum waste.
Speaking with John, he hopes that blockchain will move through the ‘trough of disillusionment’ and up the ‘slope of enlightenment’. This should happen as an increasing number of projects move from experimentation into production. As for new projects, blockchain should find its place in the digital transformation ‘toolkit’ and be used for the appropriate use cases with regards to organisational strategy. More on this can be found on John’s LinkedIn over the coming weeks. Robbie Moulding, a former LUBS post-graduate student, also discusses the importance of defining a problem statement and key pain points before implementing the most appropriate technology to align with an organisation’s strategy; blockchain is not always the most appropriate technology and this is a common mistake companies make when implementing the technology. Blockchain is part of the tech toolkit and should be chosen only for the suitable business use cases.
According to the World Economic Forum (WEF), the focus on blockchain in 2020 will be on quality, social impact, governance and a collaborative approach. An example of an upcoming project is the WEF’s government transparency project which focuses on aligning civic engagement with a blockchain deployment designed to reduce corruption in public procurement. This will be piloted in Colombia in early 2020.
A collaborative approach is important to increase business confidence in blockchain. The WEF aims to rationalise the technology and increase knowledge sharing for example through sharing learnings and challenges. The public sector supports this as can be seen through their Central Banks Digital Currency project which was launched in Davos last week. Increased governance should drive adoption. Whilst governance surrounding blockchain may increase confidence in the technology, it is important that regulation does not stifle innovation. In the bitcoin space, one might argue that regulation is actually lagging as different countries treat crypto differently for taxation. Regulation of bitcoin should be treated entirely separately to regulation of business blockchain.
There are many exciting blockchain projects, both past, present and future. My final question for John was which projects excite him the most. The ones he cited were blockchain in government, blockchain as an enabler of decentralised trust systems and blockchain in supply chain.
Blockchain has the potential to transform governments through busting bureaucracy and improving citizen engagement; modern governments are already progressing roadmaps of blockchain projects. For example, Australia’s National Blockchain Roadmap looks at regulation and standards, skills and capabilities, international investment and finally, sectoral opportunities such as the potential to use blockchain in the wine sector and the university sector.
Blockchain is also an enabler of decentralised trust. Here, John spoke about the breakdown of traditional systems of trust and the potential for blockchain to build new decentralised trust economies. More on the breakdown of traditional systems of trust and the emergence of new trust systems can be found in Rachel Botsman’s book, Who can you trust.
Finally, blockchain in supply chain has exciting potential, as has been discussed extensively by Robbie Moulding in his LinkedIn posts, such as his An introduction to my thoughts on blockchain technology and its impact on relationships between actors in the supply chain: 7 key things I discovered. Blockchain technology can improve the process of managing relationships, sharing information and making entire supply chains more transparent, through one shared single source of truth that is immutable and can be viewed in real-time by all parties in the business network.
Image: [Financial Times]