Blockchain and distributed ledger technology in practice and beyond cryptocurrencies – how it works, industries, applications, evolutions and the business reality.
Is there still something that blockchain, a form of Distributed Ledger Technology (DLT) and known as the technology that powers cryptocurrency Bitcoin, doesn’t promise to change in digital business and transaction processing?
Blockchain is poised to be one of the fastest growing digital technologies and digital evolutions for 2018 and beyond; it has a key role in the digital transformation of several processes and industries. Blockchain technology hype is still pretty high and there is a big difference between what a technology could possible do and what it really can do, or even better, does. However, there is no doubt about it: blockchain technology is becoming big business and big in business.
There are several reasons why blockchain adoption is poised to be grow across industries of all kinds faster than expected and with 2018 and 2019 as pivotal years. And even if it is still relatively early days for blockchain for most companies, all signs are clear (as are the roadmaps of some of our partners, de facto implementations and industry initiatives): blockchain is among the top digital trends for 2018 and beyond, albeit with adoption, testing and effective usage at different speeds, depending on context, industry, use case and maturity of the organizations as tends to be the case with all technologies.
Table of Contents
- 1 The explosion of blockchain business initiatives
- 2 Setting the scene: the scale and transformation of transactions in a decentralized digital age
- 3 Blockchain: an encoded and decentralized database
- 4 Where blockchain technology is used – application areas
- 5 Blockchain in business 2018-2021: data and action plans for the near future
- 6 The limitless applications of blockchain – revisiting transactions in the digital age
- 7 How does blockchain technology work?
- 8 Some benefits of blockchain technology
- 9 Blockchain in business: looking back at 2017
The explosion of blockchain business initiatives
In 2017 literally hundreds of companies, including leading global companies and leaders within their respective countries or regions across various sectors have joined important blockchain initiatives.
If you only look at the partners of a few initiatives which we mention below such as IBM’s cross-border payment blockchain initiative which mainly has companies from the Asia Pacific region on board as that’s where it starts and which was announced in October 2017 you already have close to 100 companies.
However, before we start looking more in depth at some use cases and projects (or, at least, link to them) we need to give a small overview of blockchain for business. For many blockchain technology is still relatively new, certainly outside of its Bitcoin roots. And since we only tackled blockchain from the financial services industry perspective (because that is where the attention outside the cryptocurrency context started and loads of transactions are involved) and the IoT perspective (because that is our second digital trend in our list to really watch in case you don’t yet for 2018 and involves even more transactions) thus far, we also want to look at what blockchain is and how it gets adopted in more applications and sectors than the mentioned ones (from government to legal and supply chains). Use the table of contents above to jump to the section that interests you most.
Setting the scene: the scale and transformation of transactions in a decentralized digital age
As technologies and business approaches get distributed in virtually all digitalized areas, so do transactions.
From transactions in the de facto distributed reality of the Internet of Things (IoT) to an increasing distributed transaction processing in business processes: the scale, speed, volumes and data involved are on the rise as we speak, with transactions in some applications and use cases being more than just on the rise.
The question is how do you deal with ever more and faster transactions as the core of digital business in a reliable way that doesn’t slow down transactions in any way but, on the contrary, offers the speed they need in a trustworthy and cost-efficient way? Using a distributed technology is the answer for many. Enter blockchain technology.
As mentioned in the introduction blockchain technology is rooted in the world of cryptocurrencies, more specifically Bitcoin. That connotation will disappear and we will not speak about the blockchain but about blockchains (note the letter ‘s’), blockchain technology or distributed ledger technology.
Blockchain technology is being tested and implemented across a broad range of applications, industries and use cases for endless applications. Examples, on top of the Internet of Things and financial services (banking, insurance and reinsurance, capital markets) include Industry 4.0, fraud management, digital identities, information management and far more areas and industries where it fits in a context of transactions, payments, contracts, proof, trust and so forth in the decentralizing nature of digital transformation technologies.
Blockchain: an encoded and decentralized database
Simply put, blockchain revolves around an encoded and decentralized or distributed database (the ‘distributed’ part of distributed ledger technology) which serves as a ledger whereby records regarding transactions are stored.
These records can’t be changed as the model is distributed: there isn’t a central authority but there also isn’t any involved party (those doing transactions) that can change information. Blockchain relies on peer-to-peer network principles whereby each encrypted block in the chain is linked to the next. Why the peer-to-peer network and absence of a central authority? Because blockchain was precisely ‘invented’ to solve the challenge of the lack of a central authority in cryptocurrency Bitcoin.
The attention for blockchain from a security and secure transaction perspective is, among others, related to the fact that blockchain is a cryptographic ledger whereby the chain consists of encrypted blocks and after the validation of the transaction (peer-to-peer and across the network) it is added as a block to the chain as a permanent and unchangeable record of transaction in digital ecosystems with heavy transaction processing whereby transactions, data and speed increase and meet the need for a layer of trust.
Where blockchain technology is used – application areas
Below are some examples of where blockchain or distributed ledger technology is tested and implemented with some details per mentioned industry or area of application.
Blockchain in banking, insurance and finance services
Especially since 2015-2016, many initiatives were taken by large financial service providers and institutions, as well as FinTechs, regarding blockchain for finance.
Distributed ledger technology is among others used and/or tested for insurance applications such as claims management and for banking applications where digital identity and smart contracts are just a few use cases that fit in myriad financial operations. The transfer of funds and financial transactions are other areas which are also closer to the roots of blockchain.
A token of the rapid evolutions in banking is the earlier mentioned IBM blockchain-based cross-border payment solution which the company announced on October 16th, 2017. The solution aims to solve cross-border payment challenges and offers real-time clearing and settlement. Over a dozen banks and institutions were involved in the development and deployment process. Cross-border payments are undoubtedly a key use case as in 2017 also SWIFT, Mastercard and the R3 consortium took initatives, the latter two and IBM did so in October 2017.
Digital identity is one of many applications that can be very useful in specific banking applications and even totally change the way we onboard customers, solving the identity problem and enabling full mobile onboarding as we explained at the occassion of the launch of Alastria, the first nation-wide and multi-sector blockchain ecosystem ever which was announced in Spain in October 2017 and where digital ID is an initial priority.
The Internet of Things and blockchain
The combination of blockchain and IoT is looked at and effectively leveraged for myriad reasons, ranging from smart contracts and IoT monetization models across complex chains of connectivity where trust is crucial.
There are already blockchain applications in the context of the Internet of Things and some vendors have specific solutions to enable the use of blockchain for IoT to, among others increase trust, save costs and speed up transactions. IBM is a frontrunner here, although several vendor and industry initiatives have been launched with new solutions and actual deployments. IoT is all about transactions, contracts and trust in a distributed environment. Blockchain is, among others, the missing link to settle privacy and reliability concerns in IoT as the IEEE’s Ahmed Banafa writes. Do note that IoT and blockchain convergence also touches upon the various other technologies (e.g. AI), industries (e.g. insurance and telematics) and activities (e.g. supply chain management, security) we mention on this page. In other words: IoT and blockchain needs to be seen in context and isn’t just a matter of how blockchain can boost IoT and help solve challenges we see in IoT.Blockchain and IoT
Supply chain management, logistics and blockchain
There is a very long road between manufacturing or even the design of a product and buying it in a retail store or online.
By keeping track of all transactions, again endless applications arise, for example with regards to where the product was made. There are several existing projects with regards to the usage of blockchain in supply chain management, logistics, transportation and so forth.
Industry 4.0 and blockchain
This is partially related to the previous area. If you thoroughly study the key aspects of Industry 4.0 and its Reference Architecture Model you no doubt will see how data-intensive and transaction-intensive it is.
The life cycle and value stream dimension of the architecture starts with early data collection and provisioning and maps data acquisition of production objects across the entire lifecycle. Blockchain technology is already used in Industry 4.0 applications and not just for industrial data. It is also a building block of intelligent ERP.
Other blockchain application areas
Some other application areas with a focus on transactions and security (the potential of blockchain also stretches to cybersecurity as such) include the use of blockchain in the public sector and government (even including voting) and myriad industries and use cases where rights management, trust and reliability, data protection and contracts are concerned in the increasingly digitized environments of sectors going through digital transformation: from the music and media industry to healthcare, the legal sector and more.
This list is far from exhaustive. In the next sections you can find some predictions (end 2017) with regards to the adoption of blockchain services and networks among large companies and a few of the major industries.
Blockchain in business 2018-2021: data and action plans for the near future
Analysts across the globe see an important future for blockchain in myriad organizations and use cases. On top of Juniper Research, which we mentioned earlier and several others, also IDC states that blockchain services are poised to become the foundation for digital trust at scale IDC stated end 2017. You could already see that much in the infographic above of course.
According to IDC’s “IDC FutureScape: Worldwide IT Industry 2018 Predictions“, revealed in a webcast (which you can still watch for a year) with a press release on October 31st, 2017, by 2021 at least 25 percent of the G2000 would use blockchain services with exactly that purpose.
When looking at some industries and the data from IDC mainly global transaction banks, manufacturers, retailers and healthcare organizations would be along the earliest movers to have blockchain networks in production (so no tests or proof of concept).
Blockchain networks in production by 2020: main industries
Below are the forecasts for the mentioned industries (note that IDC looks at 2020 here and not at 2021 as in the earlier mentioned prediction).
- Top global transactions banks: 25 percent with a blockchain network in production.
- Manufacturers and retailers together: a blockchain network in production by 2020 for close to 30 percent.
- Healthcare organizations: 20 percent of healthcare organizations with a blockchain network in production by 2020.
Another interesting finding, this time from IDC’s “FutureScape: Worldwide IoT 2018 Predictions” concerns blockchain and the Internet of Things, a topic we covered earlier.
Most of us look at blockchain as one of the ways to solve multiple IT data exchange and IoT monetization challenges, among others through using smart contracts. Well, IDC predicts that by 2020 up to 10 percent of pilot and production blockchain distributed ledgers will incorporate IoT sensors as you can read here or hear when you listen to the appropariate webcast in the IDC FutureScape 2018 series.
What does a business have to do in 2018 order to get ready for blockchain?
Although being a first mover doesn’t always mean being in the best position, with regards to the adoption of blockchain in business things could be different.
According to the research firm early adopters can establish very strong positions while organizations that are not participating in blockchains and the industry ecosystems they require, will encounter significant disadvantages with regards to, among others, speed and costs.
- Start by looking at all the blockchain consortiums and initiatives out there and see which could bring the benefits of blockchain within their specific industries, use cases and ecosystems.
- In the case there isn’t such an ecosystem and there is a case and benefit to do so, investigate the opportunity, which by definition obviously also means finding the right peers and partners that can help start one (or, less ambitious, join or start a blockchain network or a pilot).
- Companies that are slower in their digital transformation efforts, which really is the majority of organizations today, have to do their homework, start learning, experience the potential, talk with their peers and so forth in 2018. More importantly they need to develop use case scenarios for blockchain that make most sense for them. Those who are ahead in their digital transformation journey should put a blockchain strategy and plan and place in 2018 IDC states.
The limitless applications of blockchain – revisiting transactions in the digital age
Time to move beyond the better known potential and current applications of blockchain and get the broader picture by revisiting transactions in this digital age – and look at more areas where a new system of contracts, keeping track and ultimately recording and being able to control or prove in complex digital ecosystems is needed.
Let’s use the definition of Merriam-Webster of a transaction to make it clear: “an exchange or transfer of goods, services, or funds”. Now, let’s elaborate on that and look at two key aspects.
Goods and services mean many things
As you know we live in a data-intensive age of information where data has become a key business asset.
Think about how important data sharing and monetization has become, for instance IoT data monetization. Or think about how data is turned into actionable intelligence or business process outcomes, how important it is to have an audit trail and how automated processes which are moving data across the value chain and across ecosystems really are transactions. In order to leverage, let alone ‘exchange’ data it is key to have mechanisms in place, for instance to make sure that pieces of crucial data have not been tampered with and are reliable and trustworthy original versions which can be leveraged for whatever purpose. We can go on, even on this level of data alone.
Now start thinking about the goods and services in this day and age in the broadest sense and the number of transactions that happen regarding them as well as the need to record those, for instance from a regulatory perspective in the transfer and exchange of personal and sensitive data or how essential information is as it gets shared and used for critical medical purposes or for actions, decisions and transactions for myriad digital services. And we haven’t even really started exploring the services in this as-a-service economy yet. You see the vastness and it’s far from done yet.
Transactions don’t just happen between people
There are far more transactions between systems, between devices and between devices and systems in an increasingly hyper-connected reality.
Devices communicate with each other, intelligent building components take decisions based on data exchanges or changes/triggers of any sensor-measured external state, information gets automatically sent from one system to another in the scope of a business process or a “case” in the sense of case management, a trigger caused by a change in a system leads to a result, the list goes on.
If you entirely remove the human element and several changes in status and transactions between systems and devices lead to ever more autonomous – and decentralized – decision making as they increasingly do in industrial automation, building automation, IoT, advanced analytics with AI-driven actions and much more you really start seeing why blockchain is seen as key to the digital transformation economy by so many.The future of blockchain
How does blockchain technology work?
Each stage of a transaction is generating a set of data which are called blocks. As the transaction progresses, more blocks get added, forming a chain, hence the name.
Just as in cryptocurrencies like Bitcoin and others, which are based on blockchain technology, encryption software guarantees no one can ever delete or change blocks.
Several computers across a network have the blockchain software installed. Each transaction is shared to these nodes in the network and they compete (in Bitcoin jargon ‘mining’) to verify the transaction. The first one that verifies it also adds the block of data to the chain and gets an incentive for being first. The other nodes next check the transaction, agree that it’s correct and replicate the record. All the computers then keep an updated copy of the ledger, and this acts as a form of proof that the transaction occurred.
As said, blockchain relies on peer-to-peer agreement as opposed to a central authority to validate a transaction. Until now, if you wanted to make a transaction, you informed a central authority who checked the details with everyone involved and holds a central record such as a bank, a notary or any other central certifying authority. In the blockchain model there is no such central authority. Transacting parties rely on an open register, the ledger, to validate the transaction. Authority comes from the fact that numerous computers, ‘miners’, have looked at the broadcast data, checked it and found it correct. Trust comes not from a notary’s stamp, but the presumption that those computers can’t all be wrong. You can imagine that there is quite some discussion here as well.
In the earlier mentioned press release regarding its series of IDC FutureScape 2018 webcasts and report, IDC described blockchain as follows: “At the core of blockchain is distributed ledger technology (DLT) that offers the potential to support digital trust at scale by providing one version of the truth (secure information), transfer of value (secure ownership records), faster settlements, and smart contracts (automated buying and selling)”.
Some benefits of blockchain technology
In the blockchain model transacting parties rely on an open register to validate the transaction. This has some consequences for transactions of all kinds.
The absence of a central authority in theory makes blockchain faster. If you’re relying on a central certifier, you depend on limited resources. Clearing and settling stock trades, for instance, can take days and usually involves some human intervention. With blockchain you have lots of computers competing to process your transaction as quickly as possible. Today they can do it in a matter of minutes. In the future it may only take seconds.
Blockchain is also cheaper. All the computers holding the blockchain are paid for by the participants in the hope that they will earn the incentive for being the first to validate the transaction.
Blockchain is more transparent. It can give regulators and compliance officers clearer insight into the provenance of financial transactions, helping them to combat money laundering and manage risk.
As nothing can be changed and the ledger is present across multiple nodes, blockchain is easier to track. It won’t come as a surprise that blockchain is often used for asset tracking as a consequence (more below).
Blockchain in business: looking back at 2017
As mentioned in the introduction, several large (and less large) firms, research bodies, start-ups, universities and so forth have launched or joined industry initiatives, blockchain research groups and alliances with roadmaps and standardization projects in 2017.
This happened in an increasing variety of areas, ranging from a secure and blockchain-based IoT project and vendor-led supply chain initiatives to a trucker association blockchain consortium, the mentioned cross-border payments blockchain initiative and Spain’s national blockchain project – to name a few. After the Summer of 2017 the number of pilots, projects and initiatives grew fast, not just in number but also in business scope. This isn’t going to stop in 2018 of course, well on the contrary. In the end, on top of new initiatives, existing ones enter in stages with solutions. That’s when it really becomes interesting.
The sheer list of companies testing blockchain or having implemented it in 2017 is huge. From giants such as Maersk, dozens of insurance companies, the Port of Rotterdam, Lufthansa that recently announced a project to customers of a growing list of blockchain technology providers and hundreds of companies which you find in one or several of the associations, alliances and vertical/topical research groups.
The big blockchain technology leaders
Earlier we said that IBM is a frontrunner in the IoT and blockchain space but IBM also has the strongest credentials of all players in the blockchain sector and is quite ahead of its closest competitors.
That’s at least what Juniper Research found in a survey. The results were announced in September 2017 (and in several other releases throughout the Summer) and it seems that over 40 percent of respondents cited IBM as being ranked first by enterprises that either consider or are in the process of deploying blockchain technology. According to Juniper’s Blockchain Enterprise Survey, IBM is followed by Microsoft (20 percent of respondents) and Accenture.
Among the reasons for IBM’s leadership position:
- High-profile R&D engagement with initiatives such as Hyperledger.
- A big list of actual blockchain clients across several verticals and use cases such as banking, asset tracking and the music industry.
Blockchain business adoption, investments and practices
The announcement of the Blockchain Enterprise Survey wasn’t just about which technology players are recognized most when it boils down to blockchain, nor was the survey by Juniper (more findings in the infographic below).
There are some interesting numbers on the market and success factors, based upon the answers of some of the approximately 400 responding executives and IT leaders.
- Among the respondents prepared to share their investments in blockchain, 67 percent said already having invested over $100,000 by the end of 2016.
- Of those respondents, a whopping 91 percent said to at least spend the same amount in 2017.
The reason why spending continues or grows is related with the fact that the first results of the first investments were convincing/positive enough to conduct more extensive tests or integrate on a more extensive level. If this is a trend, then it’s another token that in 2018 we’ll see more spending and initiatives as the predictions of IDC clearly indicate.
A final takeaway: Juniper Research urges companies to focus on private blockchains for commercial deployments instead of public ones.
Where is blockchain a potentially good business fit?
End July 2017, Juniper Research released some other findings from the report showing that (as you can also check in the infographic below) 57 percent of organizations with over 20,000 employees is either ‘actively considering’ or in the process of deploying blockchain technology.
34 percent doesn’t know and 9 percent is not actively considering or deploying. That picture completely changes when looking at all companies, including those with over 200,000 employees where we see that the majority of respondents is still saying ‘yes’ but instead of 57 percent that number considerably drops to 39 percent (play with the interactive infographic below).
That brings us to the question for which kind of companies, industries and use cases blockchain is a good fit. And that’s also what Juniper Research wanted to know. The result is a white paper with the apt name ‘Which Industries are the Best Fit for Blockchain?‘.
From the press release we remember a few things. According to the research, companies which would benefit most from blockchain include those with:
- a need for transparency and clarity in (trans)actions,
- a current dependence on paper-based legacy storage systems
- and/or a high volume of transmitted information.
So, indeed transactions, trust, transparency and a lot of data with the need for speed in a decentralizing technology landscape. With regards to the paper aspect don’t think that tomorrow we’ll live in a paperless society with blockchain, trust us. On the other hand, in various applications blockchain can indeed speed up a higher independence from paper-based legacy storage systems (especially when powered by a consortium and a private blockchain that is de facto changing the game in areas where those who want to remain relevant simply have no choice).
Disruption and underestimation of the blockchain challenge as risks
When we talk about changing the game there are also the human, cultural and other contextual transformation parameters. And here Juniper research really hits the nail when saying that, despite growing awareness of (the benefits of) blockchain and more initiatives, it might be dangerous to leverage blockchain without first looking at other options as there is an element of disruption as the survey shows.
And that might also slow down the current enthusiasm a bit as, quoting the press release “the research found that companies may have underestimated the scale of the blockchain challenge”. Without interoperability, clients and partner ecosystems wanting to collaborate and so forth you might indeed get in trouble and underestimating the scale and complexity of internal and external disruption through the adoption of blockchain might be your blockchain party pooper.
That is the very reason why big names put their shoulders under blockchain and blockchain associations across various use cases and industries and why you’ll see more and more client cases coming, ideally within an ecosystem context. If you have a feeling of déjà-vu: indeed, it feels a lot like the early days of IoT and so many other technologies. But this time it seems that the stakeholders are moving way faster. After all, history has a tendency to repeat itself but companies like the leading ones above now and then also learn from history.
- Quotes IDC press release “IDC Predictions Provide a Blueprint and Key Building Blocks for Becoming a Digital Native Enterprise” (October 31, 2017)
- Quotes Juniper Research press release: Nearly 6 in 10 (57%) large corporations are either actively considering, or are in the process of, deploying blockchain technology (July 31, 2017)
- Quotes IDC, press release: Blockchain Technology: Disruptive Forces in Financial Services (20 Jun 2016).
- Quotes Deloitte: Blockchain. Enigma. Paradox. Opportunity.
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