It is understandable why so many companies have been slow to invest in the blockchain. Over the past few years, every C-suite has been showered with suggestions to navigate the next wave of innovation around this technology, identify use cases across industries, and prepare for its future.

On the one hand, they are stressed that they can alter business models, get rid of intermediaries, and “change the very nature of economic, social and political systems.” On the other, they are warned about the fuss the whole issue is causing and its vulnerabilities. But the doubts around it are disappearing, according to a Deloitte survey, which concluded that half of the senior executives consider blockchain among their five strategic priorities.

Blockchains are shared software applications that validate and create incorruptible transaction records between network participants. Essentially, they allow you to program rules for exchanging values and keep a single document.

The advantage is that there is a consensus about what happens on the network because all the participants work with the same registry. Bitcoin, launched in 2009 as the first blockchain application, was strong proof of this concept, but its use as a cryptocurrency deterred many companies from adopting it.

Executives didn’t see the relevance to their businesses: they feared that cryptocurrency’s anonymity would violate anti-money laundering and transparency laws, or they believed the technology needed to be more mature and stable. However, now that pioneering companies are starting to see commercial benefits, more are ready to explore blockchain.

This first generation generates commercial value but does not interrupt, transform, or destroy pre-existing structures; instead, they complement and increase the ROI of technology in use, such as electronic data interchange, RFID, and the Internet of Things, by removing all friction between ecosystem partners. It is not a disruptive tsunami but the high tide that drives all ships.

Examples of blockchain applications in businesses

Overall, we identified five insights for executives to determine where blockchain would add value and how to plan for implementation.

1. Business collaborations. The first applications reveal that the technology is the most straightforward part of the blockchain; what is complicated is the collaboration between partners. The solutions we studied were business projects that aimed to solve obstacles at the ecosystem level. So, it’s not that they were apps per se, but that they “enabled blockchain implementation,” and they worked because ecosystem partners managed to work together.

Two of the most popular solutions in production, TradeLens, launched by Maersk, and IBM Food Trust, implemented at Walmart, are good examples. However, none started as a blockchain project.

Maersk, a Denmark-based shipping company, needed a cheaper and more effective method of tracking cargo containers. In 2013, various partners and regulators were still involved in the process, and paper documents were used.

The company launched two initiatives: one to reduce administrative costs and another to digitize documentation. In 2016, both merged into the Digitization of Global Trade project. Maersk partner IBM introduced blockchain as a supporting technology that same year, five, and the project eventually evolved into TradeLens.

Then Maersk realized that to get all the participants (ports, terminals, and authorities) to join the network, the competitors had to be in it too. This was the most difficult challenge: companies like CMA CGM, Mediterranean Shipping Co., Hapag-Lloyd, and Ocean Network Express were reluctant to join a platform created by the competition.

To lessen their misgivings, Maersk created a client advisory council with them for more inclusive and transparent governance. As a result, as of November 2020, TradeLens had an ecosystem of more than 175 organizations (covering more than 600 ports and terminals) and had published more than 1.6 billion shipping events, 14 million documents, and 34 million containers on its network.

The business value of the platform includes reduced administrative costs, better container tracking, and faster document processing.

Meanwhile, at Walmart, Frank Yiannas, then vice president of food safety, was looking for better ways to track fresh produce through his supply chain. At that time, finding the source of an E. coli or salmonella outbreak could take several weeks.

IBM, also a technology provider to Walmart, once again opted for blockchain.6 The first pilots, dedicated to tracking mangoes and pork, took a short time to develop. But again, absolute traceability required everyone’s participation.

Many retailers source from the same suppliers as Walmart, so having competitors on the platform would be advantageous for the network. However, knowing in advance that others would be reluctant to join a Walmart-operated forum, the company decided to have IBM launch and operate the system known as the IBM Food Trust.

The new company created an advisory council made up of Walmart, Dole, Nestlé, Kroger, Carrefour, Danone, Driscoll’s, Golden State Foods, and GS1 (a nonprofit organization that develops and safeguards business communication standards) to further promote collaboration. Between competitors. Assistance was provided to smaller partners, who tend to have less technical maturity and investment capacity. For example, Walmart and IBM’s implementation and support teams worked to onboard over 100 vegetable suppliers for several months.7 By the end of 2020, the IBM Food Trust had more than 280 members, 40 million transactions, and 25,000 code codes. Reference.

2. Private and public blockchains. Businesses prefer to use private networks, but that trend could change. Just as there are public and private clouds, there are also open or closed blockchains for the public. By now, most companies in our study have chosen to use private networks to ensure confidentiality; only authorized parties can view transactions: even IBM, the IT operator of TradeLens, IBM Food Trust, and trade finance platform We. Trade cannot interpret the data without the permission of the owners.

Businesses also choose private networks because, in addition to solving the confidentiality issue, they can process more transactions per second than public networks. The lack of scalability is a severe limitation of public blockchains, as they process fewer than 20 transactions per second while waiting for thousands of nodes to validate the most recent transactions.

However, companies should only rule out public networks for a while. Recently, various projects have been carried out to increase its confidentiality and scalability, and there is a tendency to use more and more public networks.

Public blockchains are already orders of magnitude more significant in terms of the number of users than private networks and are run by open-source communities and non-profit organizations. Hence, no single entity has complete control. Professional services firm Ernst & Young (EY) is offering to help companies use public blockchains by developing a «virtual private blockchain»: it’s like a private network connected to the public internet, but the data is confidential to the uninvolved. Is authorized.

EY developed WineChain to authenticate wines and restore trust in a market rife with counterfeits: wine hacking is a multi-billion-dollar business.8 Each bottle of wine is given a QR code tokenized and published on Ethereum, a public blockchain.

The customer can scan the code with his cell phone and determine if the wine is authentic. Producers, brokers, importers, wholesalers, distributors, and retailers rely on Quorum, a private version of Ethereum, to change ownership and track bottles as they travel through the supply chain.9 EY chose Quorum in anticipation of the market shift toward Public networks: Building Quorum with public blockchains in mind minimizes recording to switch to Ethereum in the future.

3. Unalterable data. A well-designed blockchain ensures that events occur in a specific sequence without the need for data sharing. In this way, absolute trust is generated.

There is a limited amount of data stored in these first-generation apps. The source data comes from internal systems of record that interact with the blockchain. The log itself mainly fixes the cryptographic proofs of the events. Imagine that the blockchain components are support systems that establish a subtle link between each company’s infrastructure.

“In general, we don’t store data on the blockchain,” explained Aaron Lieber, head of offering management for TradeLens. Instead, like many platforms, TradeLens only stores data hashes. A hash is an algorithm that constantly transforming the original data into a unique number to produce that same number.

Hashes only work in one direction; that is to say, since there is that unique number, it is practically impossible to find out the original data. Although companies cannot remove hashes from their blockchain, they can withdraw the original data. According to Lieber, this design was chosen to ensure compliance with the European Union’s General Data Protection Regulation, which limits how long companies can retain specific data.

4. Yes to trusted third parties. Part of what was initially thought about the blockchain is that trading partners would get all the benefits since they would no longer need trusted third parties (or TTPs, for its acronym in English). But a 2020 HFS Research survey of 318 participants from Global 2000 companies found that only 6% of enterprise blockchain applications intend to cut out the intermediaries.10

These results are consistent with our research. Companies continue to rely on TTPs to manage services such as operating nodes, protecting digital wallets on behalf of clients, enforcing access rules set by members, and managing software updates. It’s just that trusted third parties are no longer needed to validate transactions.

5. The evolution of the first generations. Up to this point, blockchain applications have operated as islands. In 2017, Harvard Business School professors Marco Iansiti and Kamir Lakhani described this process as the localization phase.13 In addition, multiple applications often compete for the same ecosystems.

How many food traceability and trade finance platforms will the world eventually adopt? However, we can see signs of consolidation and cooperation for platform interoperability.

Achieving effective interoperability requires international standards and new regulations. The pioneers in our study are forming consortia for code, but they are also interacting with regulators, contributing to open source, and including current regulatory bodies in their design teams.

The way forward

The blockchain is presented as a disruptive technology that has the potential to revolutionize business and technological landscapes. However, while it may speed up technological development, it will likely happen as a plugin.

Walmart’s blockchain uses barcodes, WineChain QR codes, and RFID tags and scanners in the transportation industry. The role of the blockchain in these examples is to accelerate the spread of data generated from existing technologies: the ROI of such technologies increases thanks to the blockchain, and the blockchain, in turn, becomes more valuable.

So far, the pattern is to complement and not replace existing technologies. The blockchain does not make technological contributions obsolete; it takes advantage of them. Just as companies moved from the intranet to the internet when they felt confident enough, the next generation of enterprise blockchain can be built on public platforms. These networks can become tools of transformation when education, standards, and regulations match the technology.

Blockchain applications are here for the leaders. However, ecosystem partners must first be convinced of this business vision, and its implementation takes a backseat. “Executives don’t care about blockchain” «Because it doesn’t solve problems, but its application does.»