The inevitable future of blockchain in the enterprise
The future of blockchain in the enterprise is still unwritten, but if your organization hasn't started mapping a plan, it's already behind. Here's how to get your bearings.
Blockchain will transform how the world interacts, and its transformative reach will extend far beyond the world of finance, where it first demonstrated its key attributes and its disruptive elements. The question for IT and business leaders is when.
Forward-thinking organizations have used blockchain to bring revolutionary improvements to existing processes. They’re deploying blockchain to protect intellectual property, securely share documents and track items through supply chains at a level of detail that would be nearly impossible to do manually or with conventional technologies.
Such use cases highlight the fact that blockchain technology -- defined at a basic level as blocks of digital data stored in a distributed database -- already supports many applications outside of cryptocurrency and other similar monetary transactions. Indeed, blockchain experts believe that questions about whether blockchain is a technology that will fuel the future are misplaced. The more pertinent questions, they argue, center around how to apply blockchain to which interactions and when -- and, most important, whether such applications could disrupt entire organizations or even industries.
Executives throughout the C-suite, CIOs in particular, must think about these questions now as they form their strategies for blockchain in the enterprise. Companies need to come to terms with the future of blockchain -- its potential and challenges -- as it matures into an enterprise-ready technology, experts argue. To do otherwise means running the risk of falling behind or, worse, being completely shut out of new ways of doing business.
A blockchain primer
The origins of blockchain date back to 1991, when research scientists Stuart Haber and W. Scott Stornetta published "How to Time-Stamp a Digital Document." With it, they introduced the idea of creating a tamper-proof digital distributed ledger. Others built on the idea, but it remained a relatively obscure concept for nearly two decades.
That started to change in 2008 when an individual or a group of individuals using the pseudonym Satoshi Nakamoto published a whitepaper on how to use the concept of blockchain to create a digital currency. Although Nakamoto's identity remains unknown, Nakamoto mined the first Bitcoin in January 2009, giving rise to the cryptocurrency of the same name and simultaneously demonstrating the power of the technology behind it.
Interest in blockchain expanded after that and started to move into the mainstream. Before the decade was out, technology giants, major corporations, small niche players and startups were experimenting with the technology, launching pilot programs and proof-of-concept projects on both public and private blockchain networks.
Today, blockchain is being applied to business processes that have been costly and time-consuming due to their complexity and opaque natures. Value transfer and settlement are the most obvious and most common use cases for blockchain now, but technology experts expect that tracking provenance of goods in supply chains and transferring data across multiple parties will also prove to be processes profoundly transformed by blockchain.
Blockchain in the enterprise like early days of the internet
Still, despite early use cases that have delivered process improvements, bullishness about the future of blockchain is hardly universal. Most organizations are still wondering whether it's ready for enterprise deployment.
"Just like the early days of the internet, when we had a lot of experimentation, that's what we're seeing in blockchain," said Bill Wellman, a blockchain expert and adjunct faculty member at Harvard University. "Otherwise, right now, there are only a few really compelling uses for blockchain, where industries and companies are embracing it and moving quickly."
In fact, Wellman and other leading blockchain authorities said most business leaders, including CIOs, are still trying to understand the technology itself, including which of its attributes they want to harness and to what ends. Is it blockchain's immutable nature that will be most useful for transforming enterprise processes, or its distributed nature -- or both?
The uncertainty is par for the course, said Scott Buchholz, managing director at Deloitte Consulting LLP.
"As a technology and as a platform, blockchain is relatively immature and it's still advancing; it's a journey not an event," said Buchholz, who serves as Deloitte's government and public services chief technology officer and national director of emerging tech research.
Blockchain for transformation: Where to begin
Rather than assigning value to blockchain's individual traits, Buchholz and others argue that enterprise leaders should focus on where blockchain might enable or improve processes other technologies inadequately serve.
The tamper-proof distributed nature of blockchain enables trust between entities where trust doesn't naturally or easily exist. And it enables transaction speeds between these entities that traditional processes and conventional technologies cannot come close to matching.
All that, in turn, can remove tremendous inefficiencies and costs.
Indeed, Gartner listed blockchain as one of the top 10 strategic technology trends for 2020. The research and advisory firm cited its "potential to reshape industries by enabling trust, providing transparency and enabling value exchange across business ecosystems, potentially lowering costs, reducing transaction settlement times and improving cash flow" as reasons for including it on the top 10 list.
CompTIA likewise put blockchain on its top 10 for 2020 list, declaring "Blockchain opportunities seem limitless."
Blockchain cuts through complexity in the telco industry
Syniverse is betting on blockchain to cut through the complexity of one of its key services. The Tampa, Fla. company has a business line focused on helping telcos settle the contractual payments made when customers of one telecommunications company are connected to their calls by other carriers. Syniverse, which handles 75% of all worldwide roaming traffic, has worked in this niche market for decades, handling billions of these roaming fees every day by settling transactions based on contractual rates across multiple players. It's a complex market that, with the rise of 5G and private LTE, is growing more complicated.
Syniverse saw blockchain, which enables smart contracts, as a way to improve the speed and security of those transactions by facilitating the settlement of the negotiated terms and by removing the contract discrepancies and disputes that slow the process. In simple terms, blockchain can: identify who should get paid for which calls and at what price based on the telcos' contracts, move the payments and prove it got it all right via its immutable database.
Building on IBM Blockchain Platform which uses the open souce Hyperledger Fabric framework, the company created an application that not only streamlined service delivery to its telco customers but also turned into a new revenue stream. The application, dubbed Universal Commerce, was built to support settling roaming fees, but it also enables clearing and settlement for any type of transaction in any industry anywhere in the world, according to Dennis Meurs, vice president and general manager of Exchange, a business line within Syniverse.
A sports franchise, for example, could have fans use its mobile app to place bets with gambling companies, with the Syniverse application settling the financial transactions between the multiple entities while also establishing an audit trail that regulators want, Meurs said. Or a company could host and take payment for an electrical vehicle charging station, using Syniverse's blockchain system to handle with the settlement to the energy company.
"[It] takes the time and money and headache out of bringing together such agreements," he said.
Blockchain use cases and products
Syniverse's Universal Commerce application joins a growing list of blockchain-based products that enterprises are adopting and startups are launching to improve processes.
- Xbox, Microsoft's gaming brand, used a blockchain in 2018 to get royalty information to Xbox game publishers in near real time. The product eliminated time-consuming reconciliation work, thereby shortening the process from 45 days to minutes. Microsoft continues to build blockchain capabilities for its own use as well as for its customers through its Microsoft Azure Blockchain Service, a managed platform-as-a-service offering.
- Walmart uses the Hyperledger Fabric framework hosted by the Linux Foundation, to trace the origins of some of its food products to improve food safety. Walmart's ability to trace the provenance of mangos in 2.2. seconds using its blockchain-based approach (vs. seven days using its prior technology) has frequently been cited as an example of blockchain-enabled efficiency gains.
- Startup ProCredEx uses blockchain to power its digital exchange, where a community of member healthcare organizations can sell the credentials that they've assembled for the medical professionals they employ and purchase the verifications they need when onboarding clinicians. The system could greatly reduce the 120 days that the National Association of Medical Staff Services estimates it takes for most physician credentialing under conventional processes and dramatically cut the $2 billion a year that the Council for Affordable Quality Healthcare estimates payers spend annually maintaining provider databases.
- UNICEF, the United Nations Children's Fund, is exploring how to use blockchain to improve the collection and distribution of humanitarian aid. As part of that effort, the agency is investing in blockchain startups focused on use cases that could aid UNICEF's mission. Applications include how to use blockchain to facilitate payments, to securely share medical prescriptions and to create more transparency in how donations are used.
"Industries with complex supply chains are making the most advanced use of blockchain technology," said Jerry Cuomo, IBM Fellow and vice president of IBM Blockchain Technology.
Traditional supply chain methods of managing suppliers often involve cumbersome manual processes, Cuomo said, making it difficult to verify identities and track documents such as ISO certifications, bank account information, tax certifications and certificates of insurance throughout the lifecycle of a supplier.
"By using a decentralized approach and an immutable audit trail, blockchain solutions can eliminate manual time-consuming processes and help reduce the risk of fraud and errors," Cuomo said.
Future of blockchain as token economy grows
As companies are discovering, other processes in which blockchain could be effective include tracking the sale and ownership of goods and services, tracking consumer transactions and confirming regulatory compliance in heavily regulated industries such as mining and shipping.
As the world moves more to a token-based economy, in which real-world assets are digitized so they can be shared online, blockchain will underpin many more transactions, Cuomo said. Tokens are a digital representation of ownership that can be applied to anything including physical goods such as food or electronics, intellectual property such as copyright or patents, or even more abstract concepts such as a birth certificate or university degree.
"Any business that exchanges goods or services will have a reason to use blockchain as this economy grows," he said.
Blockchain challenges and barriers to success
Although existing blockchain implementations, such as Walmart's food tracing capabilities, are proving valuable, experts acknowledged that there also exist significant barriers to adopting and scaling blockchain use in the enterprise.
For starters, no one particular organization will benefit from adopting a blockchain-based approach on its own. Experts said there's no purely internal use case yet identified where blockchain -- with its distributed nature and its ability to create trust in a trustless environment -- is needed.
"It never makes sense to use blockchain within an organization only. There's no need for distributed trust; you can have a centralized database," said Avivah Litan, a vice president and distinguished analyst at Gartner Research.
Thus, an enterprise looking to start a blockchain-based project for whatever reason -- whether it's to speed transactions, enable trust or create an immutable audit trail -- would seek to do so in conjunction with others involved in the same transactional chain. That requires significant cooperation and coordination among those individual organizations, which is no small feat.
"Imagine getting 12 or 20 [organizations] to do something at the same time in the same way. A lot of the adoption is getting tripped up there," Deloitte's Buchholz said. He said that's why the most successful implementations of blockchain to date have been in areas where existing intermediaries take the lead.
Enterprises must also see enough value in the blockchain-based approach to make the investment in the new technology worthwhile. Incremental improvements in time and cost won't be enough to get all the enterprises in an ecosystem to make the switch.
"It's finding use cases big enough to go through the battle of changing multiple organizations at the same time [that's challenging]," Buchholz added.
Additionally, Litan said the dearth of supporting services and technologies -- such as performance management services, security services, and application configuration and development environments -- that are ready for IT use to enable their ambitions further tamp down enterprise adoption.
Similarly, many organizations aren't technically equipped to implement blockchain even if they have a compelling use case.
"In many areas, the [blockchain] technology is ready, and we are waiting for legacy systems to catch up," said Charley Cooper, managing director at R3, an enterprise blockchain company. Implementing blockchain requires new procedures, training for staff and the support of regulators. One of the biggest barriers to blockchain's mainstream uptake -- as is the case with all new technology -- is reconciling legacy systems and traditional ways of working with those new developments.
"That requires a considerable shift in mindset, and even if new technology does bring increased efficiencies, lower costs and all the rest, you still have to ask people to recalibrate how they've traditionally done business. That's no small ask," Cooper said.
At the same time, many organizations that have experimented with blockchain-based approaches have been disappointed in the results, Litan said. Poor planning was no doubt a factor in many of those failures -- for example, use cases were ill-defined and the organization failed to analyze the value blockchain could deliver. Nonetheless, such negative experiences breed skepticism about blockchain's ability to produce good returns, tempering some of the initial excitement around blockchain.
"We're starting to reach the trough of disillusionment in the hype cycle," Buchholz said.
The future of blockchain in the enterprise: It will take a village
However, experts such as Buchholz are convinced that blockchain will live up to its transformational reputation -- eventually, and inevitably -- by delivering significant improvements to existing business processes, enabling new business models and drastically reshaping how entities interact digitally.
They just aren't sure on exactly how long that will take, and exactly how blockchain technology will be reshaped to deliver on those benefits.
"Do I believe there will be a lot more uses of something that looks like a tamper-proof system shared between organizations? Yes. Do I think that will be recognizable as blockchain as we know it today? Maybe," Buchholz said. "It will live up to some of the promise, but it will take at least a decade or more to do so."
Many CIOs likewise view blockchain as a transformational technology. Deloitte found in its 2019 Global Blockchain Survey that 53% of the 1,386 senior executives polled believe blockchain has become a critical priority for their organizations, up 10 points from the prior year. And 83% said they see a compelling use case, up from 74% in 2018.
CIOs, however, will not be building blockchain networks themselves.
Rather, organizations might set up a new consortium to develop blockchain systems to improve existing processes or create new opportunities. Or a single company might pursue that route, taking the lead among its business partners. An example is Walmart working with IBM to create a blockchain-based food traceability system among its suppliers using IBM's Blockchain Platform; other companies now use IBM Food Trust to handle the provenance of products.
Organizations also might find that an existing or new intermediary is developing blockchain-based platforms that they can use by becoming members or customers. ProCredEx, as noted above, is such an example.
Experts said they also expect more software vendors to develop new products that use blockchain.
"For most users, they're going to be using an app that will use blockchain as the underlying technology, whether it's an application for a financial transaction or for contracting or for their supply chain," said Seth Robinson, senior director of technology analysis at CompTIA.
"The app is what they'll focus on, and the fact that it has blockchain to add security or reliability might be why they choose it, but the blockchain technology itself is going to be largely transparent to the user," he said.
In most cases, the entities developing the software will build their applications on existing or emerging blockchain platforms (either public or permissioned) such as those IBM, R3 and others offer. Case in point: Syniverse's Universal Commerce, which uses the IBM's cloud-based blockchain platform.
Furthermore, tools to help enterprises use blockchain are coming to market.
For example, EY in early March 2020 launched the Baseline protocol, a package of public domain blockchain tools that allow enterprises to build and deploy procurement and other business processes securely and privately on the public Ethereum blockchain. EY developed the Baseline protocol in cooperation with ConsenSys and Microsoft.
The Baseline protocol supports smart contracts and industry-wide tokenization standards. Paul Brody, EY's global blockchain leader, said it's designed to streamline complex transactions – namely, enterprise volume purchase agreements.
"Companies are good at negotiating contracts, but they have trouble keeping track of the volume they purchase: How do you keep track of who bought what at what price? This turns [the negotiations] into a blockchain-based smart contract so everyone gets the correct price for the requested volume," Brody said. This, he added, gives executives confidence that they get the full value of the deals they negotiated.
Selling the business case, not the technology
Such use cases could help get blockchain more executive support by demonstrating its ability to solve real business problems and generate a strong ROI, experts said. But it's the ROI that motivates and acts as the selling point, not blockchain as a technology.
"We don't have CIOs who are being told that they need to think about blockchain. We have CIOs hearing that the company has a business problem that they need to solve," CompTIA's Robinson said. "So CIOs feel an obligation to stay on top of the new technologies out there so they can bring the right technology to bear on the problems that are being brought to them."
Still, CIOs will need to understand how blockchain works, the benefits it can offer and the challenges to using it so they can determine whether and when it makes financial and strategic sense to adopt blockchain-based approaches or engage in their own innovation around blockchain.
CIOs, as the leaders in charge of technology, will be the ones to kick the tires -- to understand how it works, where it helps, where it won't, how it could be implemented within their own organizations, what its limits will be and the investment needed to for all that work.
"In the same way that CIOs owe it to [their fellow] business leaders to educate them on the art of the possible with artificial intelligence and machine learning technologies, they owe it to [those same business leaders] to educate them on the art of the possible with blockchain," Buchholz said.
Blockchain as disruptor? A startup seeks to transform how tickets are sold and resold
Technology has upended entire industries in the past decade, as entrepreneurial minds harnessed cloud, mobile, analytics and other newer computer innovations to create new ways of doing business and getting work done.
Experts see blockchain joining that list of technologies used by digital disruptors to reshape consumer and corporate interactions.
"The hope is people will figure out new business models using blockchain technology," said Scott Buchholz, managing director with Deloitte Consulting LLP where he serves as the government and public services chief technology officer and the national emerging tech research director.
Case in point: YellowHeart, a fraud-proof live event ticketing platform that runs on a public blockchain to control the end-to-end ticketing process.
YellowHeart founder and CEO Josh Katz, a music industry insider who also founded El Media Group, a premier subscription music provider for business clients such as casinos and hotels, said he saw the need for a better ticketing system after trying to get tickets to a Phish concert at New York City's Madison Square Garden in 2017. Although he could score friends-and-family tickets for certain seats through his industry connections, he had to buy the floor seats he wanted through regular outlets -- like every other fan of the rock band. Those were running $500 to $600 each.
The resale market for tickets was creating not only exorbitantly high prices, it was also funneling revenue away from the artists themselves and the venues they played, Katz said. Moreover, it was leaving fans discouraged, keeping them away from the shows -- and leaving venues partially empty.
"There was a huge middleman market hurting fans and artists alike," he said. "The purpose of blockchain is to eliminate the middleman and create transparency, and it seemed like a perfect fit for ticketing."
He started YellowHeart in late 2017 and developed its technology on the Ethereum network in high stealth mode, drawing on a think tank of blockchain experts to create the architecture needed to sell tickets as he envisioned: with complete transparency, traceability and security and with the ability for artists to exert control from end to end.
According to Katz, YellowHeart uses blockchain to track the provenance of ticket sales, giving artists and fans insight into how the tickets move from original sale through any resales. This also allows the artists to set prices not only at the time of the initial sale but also for any resales. So, artists who don't want to price fans out of the shows can cap prices or cap increases at certain points for different tiers of tickets. Moreover, the artists can set how much of the resale prices flow back to them, the venues and the original ticket holders.
YellowHeart takes a small percentage of every transaction.
The company came out of stealth mode in late 2019 and has tested its platform with events in early 2020. Katz said the company has already garnered interest from artists, including its partner, the Grammy award-winning artist/producer duo The Chainsmokers.
Although it's too early to tell whether, or how much, YellowHeart might impact the ticketing industry, blockchain experts agreed that the technology has the potential to fuel entrepreneurial disruptions throughout the economy.