According to the Bank of England definition, a blockchain is:
“a technology that allows people who don’t know each other to trust a shared record of events”
For organisations assessing the opportunity of Blockchain it is all about the second T-word in this statement — first and foremost start thinking about Trust (or the lack of it) before you start thinking about the Technology.
Twenty years ago in the hey-days of the internet the idea of the networked economy was conceived where organisations and industries would collaborate and connect in new ways. Wealth would be generated with the sharing of infrastructure and information while squeezing out bureaucracy and administrative costs. The promise was never delivered upon — the primary reason being a lack of trust — trust in our partners, technology platforms and the motives of intermediaries and other stakeholders.
Blockchain or Distributed Ledger Technology (“DLT”) has now emerged as one of the pieces of the puzzle to address this trust deficit. By storing multiple copies of records across many different nodes we can now start to build systems that are visible to all, created by consensus and tamper-proof. We now have the means to build more open, collaborative systems with the potential to increase commerce and reduce waste. Many organisations are now grappling with the challenge of working out where or how Blockchain technology might add value — the answer is to assess through a trust-based lens rather than a technology one.
There are a number of decision trees and frameworks of varying complexity which have been developed to help guide Blockchain prioritisation but ultimately what you are looking for are use-cases or scenarios in your business where trust is diminished — this is evidenced in three “Trust traps”.
1. Friction and Inhibition which refers to the revenue impact of reduced trust. If we don’t trust the people we are dealing with or we don’t trust the products or services on offer then we either make lengthy buying decisions or we simply opt not to buy at all. There are numerous blockchain use cases emerging to overcome such friction by using public ledgers to vouch for the authenticity or provenance of goods for sale. It is estimated that as much as 20% of some high-end wines are counterfeit so a number of start-ups are now applying blockchain technology to provide visibility that the wine you are offered in a restaurant has originated from the vineyard it should have. Similar application of blockchain is being used to validate limited edition sneakers, fine art or the provenance of your organic salmon. A different type of value exchange that we have all become more wary about is the offering up of our personal data, new entrants are now entering this market with blockchain related identity solutions that give consumers more control over how and who they share information with.
2. Duplication and Bureaucracy is the massive cost overhead of all the internal systems and processes that are replicated across organisations because no one wants to rely on someone else’s version of the truth. Organisations feel obliged to create and maintain their own ledgers which then gives rise to additional cost and overhead as we endeavour to reconcile each of these systems and keep them in sync. An excellent example of this is global trade where physical goods are moved internationally alongside cumbersome information flows between multiple parties such suppliers, customers, local carriers, shipping agents, port authorities, customs etc. The administrative costs associated with the carriage of goods have been estimated at 20% of the value of the goods being moved. IBM and Maersk have been piloting blockchain technology to tackle this problem by establishing an authoritative ledger of movements that can be relied upon by all in the supply chain. Any industry with long and complex supply chains such as automotive, agriculture, mining and extraction could benefit in the same way.
3. The Emergence of Intermediaries is the third Trust trap — when trust is diminished or compromised then third parties will emerge to fill the gap. These intermediaries may facilitate connections and provide settlement services such as banks or trading platforms, other intermediaries such as lawyers or agents may provide oversight and compliance to marshal contracts through to completion. While intermediaries can provide a valuable service they come at a cost and they can add delay hence disintermediation appearing as another common Blockchain opportunity area. Crypto-currency is the classic use case providing a swift, low cost mode of making payments globally between two parties without a bank or payment provider taking a cut. Another use case is musical artists exploring how Blockchain can be used to manage the distribution of their output rather than through record labels. Smart contracts are the other feature of Blockchain technology which should also alleviate some of the manual processing and compliance work we see performed by intermediaries, Trade finance is one area in particular where there is a lot of blockchain related innovation currently with the use of smart contracts to trigger payments, confer ownership and settle deals.
These are still the early days of the Blockchain era and there are still plenty of challenges and questions to be grappled with — surprisingly many of these are not technology related either. In PwC’s 2018 global blockchain survey there were four major barriers to blockchain adoption that stood out:
· Regulatory uncertainty (48%)
· Lack of trust among users (45%)
· Ability to bring network together (44%)
· Separate blockchains not working together (41%)
Regulatory uncertainty is inevitable with the technology moving at such a pace but what is encouraging is the collaboration globally around standard setting — distributed ledger technology by its nature requires a distributed approach to rules and governance.
Lack of trust among users and an inability to bring networks together demonstrate the importance of just being good human beings. It seems we are living in an era where many of our leaders and our largest organisations are setting poor examples in terms of authenticity, ethics and just doing the right thing. The real value gets derived from blockchain when organisations and industries work together and clearly this is much broader than just technology conversations. This in turn requires individuals who can establish a vision, communicate clearly, earn trust and close a deal. Organisations need to be hiring, developing and promoting people accordingly.
The final challenge of separate blockchains not working together is inevitable in the short term as technologists innovate to create better, faster and cheaper blockchain options. Fortunately there are people who recognise the problem and are building the solutions to address this issue (and declaring my interests here — I work with some). For too long in enterprise technology we have seen the costs and complexity resulting from proprietary systems that won’t talk to each other — blockchain may be a new thing but there are some age-old lessons that still hold true.
In summary if your organisation is considering whether blockchain might add value then start assessing the trust traps across your value chains and supply chains. Think about the people you have internally who have the perception, personality and persistence to form strong external relationships and consortia. Finally don’t back yourself into corners with the technology choices that you make.