Blockchain Technology: How it’s Transforming Businesses Across all Industries

Executive Summary

Blockchain was introduced to the world in 2008, as a new innovate way for a digital ledger. Blockchain technology effectively records arrangements between groups on a organizations’ shared ledger. The information recorded on a blockchain infrastructure is permanent and available right away between the groups involved in the various transaction. Blockchain technology can be customized to trigger exchanges utilizing blockchain “smart contract” technology. The Blockchain works by continually growing database whereby completed blocks with a new set of recordings. These blocks are then added to the Blockchain in a linear and chronological way. Essentially, it is a large record book of all transactions. Despite been a distributed database, the Blockchain ledger is known to provide transparency for all transactions made. The database is made up of individual transactions and blocks records which are a collection of data related to the actual number of transactions made within a set time frame. The blockchain is capable of linking individuals and companies in purchasing and owning Bitcoins despite the anonymous appearance of the Bitcoins. This is made possible whereby parties which are referred to as miners are allowed to process and verify transactions. Blockchain also includes some other form of data which is the hash of the various block’s data. This makes tampering with the Blockchain data practically impossible. Changing of any transaction in a Blockchain changes the block’s hash which makes the subsequent hashes related to all following blocks incorrect. With this in place, identifying a corrupt or otherwise tampered record becomes very easy. Blockchain introduces a new generation of transactions where applications are established with complete trust, accountability and transparency and at the same time streamlining businesses. Blockchain uses the analogy of the conventional banking making Blockchain similar to a full history of banking transactions. In that case, blocks are like individual bank statements. Further, based on the Bitcoin protocol, the Blockchain keeps records on every Bitcoin transaction thus providing an insight to crucial facts like the value belonging to a particular address at a particular point in time. Blockchain’s revolutionary technology has created a shift on how companies engage. This new shift has created trust with various companies allowing business deals to take place globally. In 2012, the original investment in blockchain technology was one million dollars, since then investments in blockchain has skyrocketed. According to PwC in 2016, there were $1.4 billion dollars invested in blockchain technology (Redman, J. (2016, November 07). As blockchain technology grows through various industries, organizations can take a new approach on how they exchange goods and services with various partners.

Blockchain Introduction

The blockchain is a distributed ledger technology that enables transactions and information in a shared ledger to be transparently displayed to all network participants. The individual blocks, with the transactions written thereon, cannot be modified and thus cannot be manipulated, or are only very difficult to manipulate. This is a significant difference in the way that today’s ledgers work, since each party has their own account book in the existing system, and one transaction requires a posting and a rebooking.

It is possible to differentiate between different types of ledgers:

1. The internal ledger is fed by internal systems and provides a consistent overview of the most significant assets.

2. For a relatively small number of participants, the Consortium shared Ledger offers the possibility to exchange reference data among each other. This provides a real-time overview of data previously separated and only merged as needed.

3. The information hub is implemented only in a single organization and offers the possibility to exchange something that is not significant but is significant for communication (e.g., earnings notifications).

4. High-Value Market means a comprehensive and complex general ledger, which is used to exchange high-quality assets between many stakeholders in a market.

Today’s Supply Chains Constraints

In today’s world, organization’s supply chain can conceivably include many stages while being located in various parts of the world. For example, if we examine Apple Inc. they have six core product lines, and their supply chain vendors employ more than 1.6 million people in 20 different countries (Apple Supplier Responsibility Progress Report 2016).

Looking at our example of Apple, we can say this makes it extremely hard for Apple to track the various events that take place in their supply chain and for them investigate incidents. Since there is a discrepancy in the data and the events in the supply chain, the further away an event takes place in the supply chain the harder it is to obtain data.

Organizations and vendors need to have a solid framework for confirming and approving the genuine price of goods or services that are bought. The endemic absence of transparency in supply chains viable implies that organizations’ pay for services or goods is frequently a wrong impression of what the actual cost of production is. There is no standard approach to tracking the ecological harm that takes after the assembling of merchandise for supply chains that are not completely integrated, which is the result of most goods being manufactured.

Transactions Are Complex

The diagram above illustrates how many organizations’ today run their operations. From the illustration above, we can say many of today’s companies run transactions in a complex manner which results in many issues. One challenge many organizations face from running such complex transactions is transparency in their ledger. Since there is no transparency between different parties involved in the deal. As a result, the possibilities of human error or even fraud occurring is high. Additionally, other risks consist of loss of paper trail which can results in delays ultimately causing stakeholder losses. For a real-life example, we can look at what happened with Enron. The energy company went bankrupt in 2001 after committing a massive accounting fraud. Arthur Anderson and fellow colleagues of Enron committed $78 billion dollars in fraudulent transactions such as; money laundering, fraudulent international wire, security fraud and mail fraud (Enron scandal. 2017).

Summarizing the diagram above, it represents the “status quo” for business networks. Each participant keeps their ledger(s) which are updated to represent business transactions as they occur. This is expensive due to duplication of effort and intermediaries adding a margin for services. This method is inefficient, as the market conditions, the contract(s), is duplicated by every network participant. Additionally, conducting business with this approach makes an organization vulnerable because if a central system (e.g. Bank) is compromised due to an incident(s), this affects the whole business network. Incidents can include fraud, cyber-attack or a simple mistake.

Transformation of Supply Chain with Blockchain Technology

Blockchain Makes It Better

Blockchain provides a shared ledger technology that allows any participant in the network to see the one system of record, or ledger. By using blockchain technology, businesses can benefit from a more efficient transfer of goods and services. Ledgers are a system of record for organizations. Transactions are asset transfers onto or off a ledger, and contract(s) defines the conditions for a transaction to occur. Blockchain technology enables participants to share a common ledger which is updated in real time every time a transaction takes place between the involving participants. Cryptography is used to ensure that network participants see only the parts of the ledger that are relevant to them, and that transactions are secure, authenticated and verifiable. Blockchain also allows the contract for asset transfer to be embedded in the transaction database determining the conditions under which the transaction can occur. Network participants agree how transactions are verified through consensus or similar mechanisms. Government oversight, compliance & audit can be part of the same network. From the illustration above, we can see with Blockchain technology it helps organizations have a more transparent process. Essentially, eliminating traditional paper processes, removing the bottleneck processes within transaction times, and improving organizational efficiencies.

Today, there are multiple, partitioned and partial ledgers for transactions owned and controlled by different parties. This creates a trust problem. Blockchain is a shared, replicated, permissioned ledger that solves the trust issue. It has these attributes:

  • Consensus — participants agree that a transaction is valid.
  • Provenance — participants know where assets came from and how they changed over time.
  • Immutability — no participant can change a transaction once it is agreed to. If a transaction occurs in error, a compensating transaction is recorded.
  • Finality — There is one place to determine the ownership of an asset, the shared ledger.

The following below is how participants may act in different roles of the blockchain;

  • Regulator — Performs oversight, the overall authority for the network. Ensure access and authorizations are enforced properly.
  • Blockchain User — Typical users who interact using line of business applications.
  • Certificate Authority — Manage different types of certificates required to manage the Blockchain.
  • Traditional Data Sources — Data sources that may be used to enhance the Blockchain applications (chaincode).
  • Traditional Processing Platforms — Platforms that might be used by Blockchain applications (chaincode) to augment operations. These could potentially call into the network as part of business processing.
  • Blockchain Network Operator — Define, create and manage the network. Each organization would have their own Operator.
  • Blockchain Developer — Create applications and Smart Contracts.

Demo: How Blockchain Works

Adoption of Blockchain Technology Today

Many people’s perception of blockchain technology is considered to be too early to implement. Many financial institutions, and organizations’ have been examining this offering, and have been created partnerships with tech giants to have a blockchain framework with their networks.’ Santander Bank, the 16th largest bank in the world has pinpointed 25 use cases for how blockchain technology can reduce $20 billions of infrastructure costs for organizations annually (Perez, Y. (2015, July 05). UBS the 26th largest bank in the world has forecasted by the year of 2017 80% of financial institutions will have implemented Distributed Ledger Technology (DLT) system (Kelly, J. (2016, August 24). UBS believes with this solution financial institutions will see the benefits of lower infrastructure costs which includes; messaging, matching, payments, remittances, trade reporting, contracts, reconciliation and middle-office processes.

Recently, Infosys & Let’s Talk Payments has conducted a study of use cases for financial institutions. The company has created the following diagram below illustrating on a 5-point scale, five being most important and one being least important for applications and testing for financial institutions.

Source: Blockchain Technology: From Hype to Reality. (n.d.).

In recent years, the non-financial services use of blockchain has risen with 100+ new businesses being established all around. A portion of the early investors and founders of blockchain which are heavily focused on serving banking, supply chain, healthcare, and retail industries. There are various of other benefits that other industries could take advantage of this blockchain solution. QInsights has created the following diagram below illustrating the potential benefits of blockchain across several sectors.

Source: INFOGRAPHIC: Blockchain Breakdown.

IBM Blockchain Use Case

IBM is already working with hundreds of customers on how the blockchain can be used in the business world. Financial services, supply chains, IoT, risk management and healthcare, are some of the areas where blockchain can play a major role (Haswell, H. (n.d.). IBM is also participating in the Linux Foundation’s Hyperledger Project, which provides blockchain elements as an open, cross-industry standard should. IBM is one of the 11 leading members of this project. Also, more than 40 other companies are involved in the joint project (Ferris, C. 2017, March 10).

IBM Blockchain on Bluemix provides access to the latest Linux Hyperledger code for all developers who want to develop applications for blockchain. IBM Blockchain supports the most diverse industries and areas of application. The Bluemix services simplify work with the IBM Blockchain code (Slocum, H. (n.d.). Since July 2016, IBM has been offering one-day workshops on the subject of blockchain for customers of all industries in Germany. A team of experts, consisting of developers and architects, located in the German research and development support customers from different industries in the transformation of their companies using the blockchain.

Just recently, IBM introduced their blockchain solution to Maersk. Because of this solution, Maersk will be using IBM’s blockchain solution to manage their fleet of containers. The Danish shipping company which controls 20% of the market, is the world’s largest carrier. This answer will help Maersk oversee and track the paper trail of a huge number of transportation holders over the world by digitizing the processes held within supply chain framework. 90% of products in worldwide exchange are conveyed by the sea shipping industry every year. IBM and Maersk plan to work with a system of shippers, cargo forwarders, sea transporters, ports and traditions experts to assemble a new worldwide exchange digitization solution. This blockchain solution is intended to help lessen extortion and mistakes, decrease the time items spend in the travel and shipping process, enhance inventory management processes and eventually diminish waste and cost. As a result, from end-to-end to improve straightforwardness and the exceptionally secure sharing of data amongst exchanging parties. Because of this solution, it will help save Maersk, and various other companies billions of dollars (Maersk and IBM Unveil Supply Chain Solution on Blockchain. (n.d.).

Citation References

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