So, why should you consider blockchain?

Even with all the news around the failures of Bitcoin and other digital currencies, the potential of Distributed Ledger Technology (DLT) is still far more than digital currencies. The failures of using currencies will be fixed at some stage, but like any gambling, you need to be prepared to lose everything. There are chances you can make lots as per any method of gambling, but it is still gambling, and until there is protective legislation, there will always be something or someone happy to take your money. But, and that is massive, the underlying technology and potential of a DTL is still something all businesses should embrace and apply to the many other aspects for which the blockchain is being used. You can track, manage and gain a far greater Return on Investment (ROI) on your products and services from the field to the door.

It was soon after 2008 that the blockchain revolution was announced with the usual accompanying promises that any new technologies give, but this usually ends up where those promises collide with development realities. After a decade-plus down the road, those early promises are starting to manifest. Blockchain or DLT has started to mature to a point where it is enabling applications that are starting to disrupt many different industries such as manufacturing, medicine and the media.

So how can leaders harness this technology before other established and new competitors use it against them? So, what holds many large companies and industries back in their adoption? To better understand this issue, we need to understand the complexity of the technology itself.

Blockchain technology is similar to DLT. It has, for a long time, been heavily associated with cryptocurrency. Blockchain technology uses encryption and verification methods to restrict access to append-only, where new data can be entered, but existing data cannot be changed. Blockchain has exploded, making its way into everything from tokenising pixel art to fantasy sports leagues to digital worlds where you can buy a piece of virtual real estate.

DLT is used across the enterprise to synchronise and share data in a ledger while verifying the accuracy of input and outputs. Industries using DLT encompass supply chains, accounting, financial services, warehousing, shipping and more. The key benefit of DLT is its ability to reduce the cost of maintaining, securing, and verifying databases on a global scale.

Blockchain is secured by an elaborate mathematical puzzle that is energy-intensive, requiring large investments in high-power computing. It limits the volume of transactions that can be processed easily, making it hard to use blockchain in a setting like credit card processing. Another aspect is interoperability, which is a lot of different protocols for running blockchains; communicating with other blockchains creates points of weakness that can be hacked or otherwise fail. Besides the technical challenges, there is the issue of ROI. In the past, blockchain was not free and difficult to sell to management, especially due to the financial and human resources needed to be invested.

Trust is a huge issue for most organisations, particularly when adding independent firms to a blockchain. It will usually require a long philosophical and cultural leap from traditional companies used to a chain of command. The biggest challenge is the change in mindset from a hierarchical world to a transparent, decentralised network where everyone talks to each other without intermediaries.

Over the past 15 years, there has been a continuous improvement in the underlying technology of blockchain. There are still obstacles, but they have become much lower since blockchain was first introduced. Using the good practice of pilot projects, any organisation can show the true ROI for adopting this technology. The company and its culture can still pose a problem, but using blockchain technologies can be an engine for trust. Over time we have seen the development of permissioned blockchains; these are closed versions of their permissionless counterparts. While this changes the landscape of what they can do, it also empowers them to serve in many different roles that can bolster decentralised enterprise applications. At its heart, a permissioned blockchain is one where a central authority controls aspects of the network, from user access to data encryption, typically by making the blockchain private.

There are trade-offs that leaders need to consider. The strength of a blockchain is that most nodes have to validate a transaction and that its tokens create an economic incentive not to cheat. Using permissioned blockchains will reduce the number of nodes approving any transactions. Some benefits, such as security for sensitive data, customisation, faster performance and decentralisation, which do not provide the same honeypot as a database system, might create more risk and effectively subvert confidence in the blockchain.

The other option is the permissionless blockchain which is a radical decentralisation. It provides the mechanisms for full transparency of transactions, open-source development models, and a lack of central authority. So, where are the vulnerabilities within this system? And how do we manage trust in an untrusted network?

Blockchain technology provides a new platform for business relationships that combines ease of use, low cost and security. It creates a new basis of trust for business transactions that could simplify and accelerate ROI. Trust is the foundation of every relationship in business and is part of how we care for our business network. Using intermediaries builds that trust, and banks ensure we deal with the correct parties and confirm transaction amounts. The management of our products from copying or illegal distribution is by the lawyers we employ. Intermediaries usually are complex, costly and take time which in this age of hackers carries security risks. Are they superfluous?

What if there were a better way? A way to connect with business partners directly with near complete trust and almost without effort? Currently, this is being done in some parts like Amazon and eBay, which have created trading venues between businesses more directly via the internet, which is faster and easier. The likes of Uber and Airbnb have brought together supply and demand management. In each case, the intermediary is the service platform that demands a fee. Trust still has its price. All of this is undoubtedly more direct and easier than ever before. Still, as Uber and Airbnb have threatened traditional business models, they too can be undermined by an even simpler platform for business transactions, that of the blockchain.

Since the start of blockchain, it has been mainly associated with bitcoin, a digital currency. But the underlying technology and its principles have almost unlimited application possibilities. Blockchain is relatively simple and consists of two elements, as the name suggests. A Block and a Chain. The block is a highly encrypted list of entries related to a transaction. All relevant details to the transaction can be contained in the block. These could include the delivery status of a product, the people involved in that transaction or the payment made between two or more parties.

The important part is that documentation is managed in one location and distributed among blockchain users. Effectively there are countless copies, potentially millions distributed throughout the network. The chain of the blocks ensures that the content of the block remains trustworthy at all times. Any changes in a block, such as a payment statement, are validated across the entire network. With the combination of encryption, decentralisation, and many stakeholders and community control, the system is nearly impossible for hackers to penetrate. Trust is built through the technology and the network’s comparison process. It forms the “Trust Protocol” and enables an untrusted network to become trusted without intermediary players or organisations. Many in the traditional intermediary position are scared and working to disprove that trust, to no avail. The blockchain is changing many different and traditionally sacrosanct roles of the intermediary.

The blockchain has enabled the use of “Smart Contracts”. It increases security, lowers costs, increases speed, and creates confidence without using any middle person/organisation. It takes business relationships to a whole new level. Information blocks can trigger transactions when a specific event occurs. For example, after the sale of a product, pro rata payments could be automatically made to all entitled to a payment under that contract, replacing the concept of a central authority; a decentralised network is an authority.

Businesses that use the blockchain can cut out some, if not all, of their middle people/organisations and go directly to the consumer. It will reduce costs significantly. Many of the intermediaries in business transactions would usually take a cut of the price of the goods. Imagine for the music industry if the artist could conduct their business directly with their consumers. Providing licenses, concessions, and rights management are all in the blockchain. It provides the advantage that all sales data can be aggregated and provide information on the market.

From the ground to the finished product, supply chains go through countless stages, potentially in many different regions of the world, making tracking difficult. The blockchain will make the process more transparent by confirming each step with a block entry. It could be automatically controlled by using RFID connections and IoT technology.

It is still early days with this technology, and recent news of the failures of the different digital currency exchanges has put the blockchain under a dark cloud. But that is not the case; what is under that dark cloud is the application and use of the blockchain concerning digital currency, not its application of the technology. But things are changing. The replacement of the middle people/organisations is still a way off, but it is coming.

As of May 2022, DLT and blockchain are among the hottest trends in business, finance and many other industries. Since its introduction, it has created new investment vehicles, opportunities, and sectors. New Business models are emerging using these advancements. Improving workflow, data security, e-commerce, government processes and much more.

Many businesses invest, develop, and implement new products that use blockchain or DLT. It is important to understand that a blockchain is a DLT, but a DLT is not a blockchain. The most important difference is that blockchain is just one type of distributed ledger. Although blockchain is a sequence of blocks, distributed ledgers do not require such a chain. Furthermore, distributed ledgers do not need proof of work and offer theoretically better scaling options. Think of blockchain and distributed ledger as you might think of Kleenex and facial tissues. The former is a type of the latter, but it has become so popular that it has become ingrained in people’s minds as what the product is.

Cryptocurrencies are only a part of the use of blockchain technology. It was designed for transferring value; investors also use it to store value, hedge other investments and hold them for growth. Non-fungible tokens are part of the emerging metaverse design as the ownership of digital assets becomes popular, and digital securities use blockchain to create traditional investments such as stocks and bonds.

Over time the development of the blockchain has created different flavours. Depending on the problems to be solved and the number of parties involved in making decisions, permissioned blockchain could work well. An example of a permissioned or fiat blockchain is the Federal Reserve’s use of blockchain to manage its financial transactions. In this case, they can restrict the number of nodes to only trusted financial institutions they know, maybe 100 or so. The Federal Reserve could offer higher speeds and scalability by reducing the number of nodes. And as the Federal Reserve knew the banks they were dealing with, that trust would not be a major issue. There is always a risk that one of the banks could be compromised, but the distributed nodes will enable the management of that risk.

With start-ups building businesses around blockchain, they will pose a strategic threat to incumbent businesses as they don’t have historical restrictions. The whole idea of blockchain is to do away with intermediaries. Imagine any business and what they could save if they cut out the middle person/organisation. Imagine how this would impact the likes of Spotify if the artists interacted directly with the fans or consumers, controlling their credit information and determining when, how and to whom they would provide access to their data. Incumbent intermediaries need to start learning how to use blockchain or identify their value proposition and why businesses would continue using their services. Waiting to see what will happen may be a little late to address the challenge.

The challenge for incumbents is to think outside the box and find their value proposition for their customers and why they should stay. One area is supply chain management. Maersk and IBM joined to create TradeLens, a blockchain-based platform designed to create a single source of truth for international shipments. The process of shipping is difficult, time-consuming and subject to fraud. These errors can cause disputations and lost documents that cause hang-ups in customers and other parts of the supply chain. Using TradeLens, parties involved get full visibility into the shipment process. Transactional data is constantly updated; counterparties know exactly where the shipment is and at what stages it has passed. These transactions can also attach electronic bills of lading or letters of credit, enabling banks to become part of the blockchain and releasing payment when all contract terms have been met. It’s all about becoming the glue that binds and makes visible the entire process from the ground to the table or product.

Where do leaders need to start? A great position to start from is understanding how you join the dots and bring their businesses together where everything can be seen, from creation to delivery. The starting point starts with the low-hanging fruit of identifying internal connections. It will also include internal and external parties involved in delivering the required outcomes they are looking to achieve. Finally, bringing all parties involved and responsible for the result is paramount and will provide the biggest bang for your buck or the maximum ROI.

One of the biggest challenges to date has been personal security and privacy. Many organisations require certain information to meet their security needs for access, but once this has been established, keeping and managing that information presents a major risk and exposure to any organisation. In reality, there is no real need to keep that information. Usually, it is personal and is not the organisation’s property but that of the employee, customer or user. Recently, this has been front-page news with the global hacks of major corporations.

Imagine capturing all your personal data and identification methods and controlling who sees what and when. More importantly, to have the ability to see access to your data in your hands and when you decide to remove that permission. But earning money from that use and not unknown third parties. It can now be done using the blockchain in Self-Sovereign Identity management (SSI). SSI is a term used to describe the digital movement that recognises an individual should own and control their identity without the intervening administrative authorities. SSI allows people to interact in the digital world with the same freedom and capacity for trust as they do in the offline world.

Everyone (including businesses and IoT) has different relationships or unique sets of identifying information. This information could include birth dates, citizenship, university degrees, or business licenses. In the physical world, these are cards and certificates that the identity holder holds in their wallet or a safe place like a safety deposit box. They are presented when the person needs to prove their identity or something about themselves.

Self-sovereign identity (SSI) brings the same freedoms and personal autonomy to the internet in a safe and trustworthy identity management system. SSI means the individual (or organisation) manages the elements that make up their identity and digitally control access to those credentials. With SSI, the power to control personal data resides with the individual, not an administrative third party granting or tracking access to these credentials.

The SSI identity system allows you to use your digital wallet and authenticate your identity using the credentials you have been issued. You no longer have to give up control of personal information to dozens of databases each time you want to access new goods and services, with the risk of your identity being stolen by hackers. People can control their information and relationships. A person’s digital existence is independent of any organisation: no one can take their identity away.

Many organisations now provide this service which has grown over the past several years. It has reached a level where the Candian Government now uses it to manage their driver’s licences. In refugee camps, people have nothing and no form of identity or a method to carry around identification paperwork to capture that data and store it against their digital id. A simple smartphone can produce validated identity information as required and only the amount required.

Organisations should learn to understand where best they can leverage the features of blockchain. Understanding the attributes of blockchain organisations can then determine where there may be a good fit and possible use cases to consider. A great example is the management of confidential data that is regularly changing. The blockchain will enable the organisation to track, share and validate the data. If someone attempts to tamper with it, it will be highly evident. Another example is smart contracts, where you require certain sequences based on events as they are carried out or triggered by certain events or information.

Next, once a business case has been identified, carry out a pilot and prove your idea. It is where an organisation can learn about the steps involved in building a blockchain application. If you are new to this space, you may require a consultant’s services to assist in architecting your idea without having to reinvent the wheel. There are many options available, especially in the open-source market.

The next is to consider the golden rule of technology adoption. Does this solution improve the current processes, save money or both? Most importantly, it is to understand the value proposition and communicate it to the intended users of this application or service. Change is always hard, but if people see that change as an improvement, they will be more willing to adopt the new solution.

Then comes a really interesting part, which is getting people on board. It would help if you had users, which requires a certain amount of education and training because people will be scared about moving to something new. You need to have champions from the top saying, “Hey, we support this, and we want you on board.” You also should plan on running the blockchain in parallel with the legacy system for a while because nobody is brave enough or foolhardy enough to say, “I’m going to move right from the legacy to the blockchain.”

After you’ve got the pilot running, it’s time to take stock. What is user feedback? Are you accomplishing the pilot’s goals, and can we estimate the return on investment? It would help if you went back to the board and top management and presented the results. Sometimes the results may not be encouraging because of execution mistakes, and you need a do-over.

A phased adoption approach is a great way to start if the pilot is successful. As you progress through each phase, you are building capabilities and proving the value the resistance level will slowly drop. Once you have achieved internal success, you can expand the application to include external parties. This stage can present some issues, and interoperability is something worthwhile to make a central focus in progressing outside the organisation. The entire process is usually an iterative cycle and may take some time to extend the functionality and capabilities at each stage. Importantly always remembering to ask yourself how this is improving the situation and be able to demonstrate that proof.

Blockchain applications have become a valuable asset and tool for management. The role of management requires decisions to be made. Blockchain will enable the required information and data to make those decisions. Live and as they happen. More importantly, as the connections build and the data grows, information connected via a Machine Learning engine or Artificial Intelligence will further enable more predictive decisions founded on real-time data.

So, are you prepared to re-assess and consider what blockchain can achieve for you?