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Blockchain reality check 2020: Challenges and winning applications
As widespread blockchain experimentation continues, early winners are emerging among use cases in areas including finance and supply chain. Current challenges include ecosystems, trust, and governance
The Hyperledger Global Forum, held in early March in Phoenix this year, offers a useful snapshot of the state of enterprise blockchain. The open source Hyperledger project doesn’t encompass the entirety of the space; Corda, for example, is another open source blockchain project that’s primarily focused on the financial sector. However, Hyperledger projects make up a large percentage of serious blockchain deployments.
I choose the word “serious” here instead of “production” deliberately. Over the past couple of years, we’ve often seen the production term used for working proofs-of-concept and pilots as well as (usually small-scale) genuine production workloads. Now, with more and more genuine – if often still in the process of being built out – production examples, it’s easier to be fully candid about how far along projects really are.
[ Can you explain blockchain to non-techies? Read our related story, How to explain blockchain in plain English. ]
The blockchain ecosystem challenge
Among other things, this makes it easier to focus on the genuine challenges.
One that I heard over and over again at the conference: Convincing all the relevant parties to participate in a business blockchain network. That can be hard because the nature of blockchain networks is that trust and control is more distributed than when a single central party is in the middle of things. Giving up that control challenges many organizations, but doing so is necessary for blockchain to work. “The footprint of ecosystem rearchitecting is the measurable process,” said David Treat, senior managing director, Accenture.
There can be value in smaller networks in which, say, a single company is connected to its own suppliers. Indeed, Treat argues that while you can “build off islands of implementation, each island has to have value itself.”
That said, overall value tends to increase with a larger network that includes competitors as well. This means carefully architecting who has access to what data, but it also seems to depend on the industry and the hot buttons of the participants. For example, multiple grocery chains have joined IBM’s Food Trust network because of widespread concerns about food safety and the importance of identifying and pinpointing problems quickly.
[ What are the big trends now? Read also: Blockchain in 2020: 5 trends to watch. ]
Breaking down trust barriers
The topic of trust comes up a lot with blockchain. This shouldn’t be surprising given that it got its start with permissionless networks like crypto-currencies, where essentially no trust among the participating parties was assumed. Trust remains relevant with permissioned business blockchains. Rob Palatnick, the managing director and global head of technology research and innovation at DTCC, refers to how “trust-but-verify capability is built in.”
However, Palatnick also discussed the value of blockchain in eliminating the “need to constantly reconcile multiple sources of truth.” This aspect of blockchain as a common message bus, even when different business entities are relatively trusted, was perhaps somewhat overlooked early on with blockchain. Reconciliation even among heavily digitized and heavily regulated entities such as financial institutions can take a lot of time. (Ask anyone waiting impatiently for their U.S. tax forms in late February.)
Treat added that “a lot of different domains have different processes for the same transaction” and lacked “common payment rails.” In fact, Treat said that Accenture was starting to move away from the blockchain term and instead starting to talk about “multi-party systems” to better “recognize the variety of architectural patterns that can be combined.”
Digital identity management: A nascent blockchain use case
Early business blockchain presentations usually had a slide depicting the nearly limitless areas where blockchain had potential. And today we do see at least proofs-of-concept that cover a surprising variety of use cases.
However, I’ve touched on the two general areas that are seeing the greatest blockchain traction today: finance and supply chain. Those two buckets can be, in turn, broken down into more granular use cases with greater or lesser blockchain potential. For example, a presentation by James Wester, research director, worldwide blockchain strategies at IDC, separated out trade finance and post-trade/transaction from lot lineage/provenance; each has about 10 percent of total spend.
Digital identity is a third area that’s generating disproportionate interest, although it’s more nascent.
From a technology point of view, it’s a bit different from the other use cases, although it still builds on top of a blockchain. The most common blockchain project used for the above use cases is Hyperledger Fabric (although the umbrella Hyperledger project also has other alternatives, such as Sawtooth and Burrow). Digital identity, on the other hand, uses Hyperledger Indy, together with the associated Aries and Ursa projects.
Digital identity can get wrapped up in ideology related to control of identity. But, as in the case of a project like the University of British Columbia’s OrgBook BC, it can also be more prosaic and have more to do with breaking down silos between disparate databases at different levels of government than being focused on individual control of information disclosure. For example, updates to a business record at the federal level could automatically trigger the same change to happen at the provincial level; today the data sources often get out of sync.
There are other advantages to the architecture, which is based on the concept of a triangle of trust. Trusted issuers provide an individual or organization with a certificate and write the information to a blockchain. This allows someone (the “verifier”) to confirm the digital identity and relevant characteristics of the certificate’s holder by reading from the blockchain. With this approach, they don’t need to interact directly with the issuer.
This helps solve the scaling problems that can occur when there are lots of issuers of credentials and lots of verifiers. In addition, this system can allow for verification without directly sharing the data. It doesn’t attempt to eliminate the need for a system of record; rather it is intended, over time, to reduce the spread of individual data into other databases.
The state of blockchain in 2020
Blockchain’s near- to mid-term future has crystallized at least a bit. Widespread experimentation continues, but the primary business use cases are being fleshed out – as are the requirements, such as building ecosystems and establishing good governance models, to make blockchain projects successful.
Longer-term? There’s still plenty of work needed to build out, and thereby gain more value from, the use cases in finance and supply chain. However, there are also experiments happening in areas as diverse as land registries and microgrids that have the potential to transform existing industry practices. It’s still early.
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