Explainer: What is blockchain, who’s using it and why?

Mention blockchain and what probably springs to mind is Bitcoin. The digital currency seems to hit the headlines on an almost daily basis. It’s making some people mega-rich (apparently). It’s making the banks nervous. But it’s making most of us wonder what the fuss is all about.

Blockchain technology does underpin cryptocurrencies like Bitcoin. But its uses – and potential – go much further.

Here, let's look at what it is, where it fits into business and, importantly, how it could benefit businesses and consumers.

In a nutshell, what is blockchain?

Blockchain is a permanent record of transactions in a network. It is made up of a decentralised ledger – like a database – rather than a traditional point-to-point ledger, meaning each participant has their own copy and can see all transactions in the chain. And each block is protected using an encrypted reference to the previous block, so it’s extremely difficult to tamper with or hack.

We can imagine a world in which every agreement, process, task and payment would have a digital record and signature that could be identified, validated, stored and shared. And since blockchain ensures a consensus view of any changes, there is transparency and trust at every step. This eliminates risk, ensures a higher level of security and removes the need for a middleman.

What use could it have in supply chains?

Supply chains are essentially a series of trade transactions, so blockchain could be useful. You could prove where goods come from – are they fair trade or organic certified. The governments of the countries where the goods are shipped from and to could ensure the companies involved comply with local laws. And you can trigger supplier payments automatically when certain conditions are met.

Blockchain helps brands build trust through trade transparency.?Blockchain platform is widely used by global companies to ensure sustainable materials are used and sourced such as tracing recycled plastic, reliable information about chemical composition of products, tracking and tracing of food produce quality, reusable, recyclable or compostable packaging products, responsible water consumption, forest preservation, ethical labor practices etc.

Surveys suggest that shoppers would pay more for products from companies committed to positive social and environmental impact, but few trust the claims these companies make. Blockchain could give complete visibility of a product’s lifecycle from source through production and shipping to shelf.

“Businesses increasingly want transparency in their supply chains to prove their sustainability credentials and mitigate risks. Consumers increasingly want to know about the provenance of the products they buy – where they were made, who by and from what. Blockchain can help deliver both.”

Are companies doing any blockchain trials?

Reports suggest that several large corporates are currently running trials in their supply chain processes. Traditional trade process is resource intensive with several manual steps and stakeholders. These stakeholders work on multiple systems which means there is no single version of the truth and, as such, errors are common. Trade digitisation on blockchain could potentially reduce the manual intervention and help avoid disputes among parties. Large corporates like Unilever, Nestle are investing in AI powered blockchain software for digital supply chain visibility, traceability and sustainable procurement.

Banking has a lot areas that are ripe for blockchain intervention. These areas include timely clearing and settlement of cross-border payments and remittances, fraud and error reduction, lower administrative costs, trade finance, identity, the removal of paper trails, and syndicated loans.

There are trials being done on trade finance digitalisation blockchain products. Blockchain for trade digitisation enables validating and authenticating trade contract documents faster for multi-party cross border trade flow and trade finance transactions. Blockchain platform for banking industry is enabling banking partners and their trade network to digitise supply chain finance and trade finance to increase security, prevent fraud, improve transparency and offer faster transactions.

Another area businesses are exploring is around media buying, where data reconciliation between advertisers, agencies and publishers is a complex activity that’s both time consuming and costly. The trial – with a consortium of other advertisers – will initially focus on transparency between advertisers and agencies.

Corporates are constantly looking at where blockchain could add value to their business, but they are aware of it's ambiguity and the need for the technology to mature further. As such, they are prepared to fail quickly and learn across the business.

What does the future hold?

Right now, the technology has limitations and there’s a lack of standards, regulations and audit mechanisms.?

Plus of course, for blockchain to work, all parties must sign up. When you look at complex supply chains, for example, that means many organisations and individuals agreeing to get involved.

That said, blockchain has enormous potential to improve trust and transparency. It could fundamentally change our business processes in a way that increases efficiency, lowers cost, and improves visibility and security across tracked information within trade partners.?

@varunc360