A Field Report: the empirical (sales) reality of the 2019 industrial Blockchain markets
Three verticals are emerging in front for DLT adoption: Fintech, then Mobility and Energy. The only substantial horizontal layer is track and trace for supply chains
Crypto winter has certainly ended now with the Bitcoin price being up again and Libra having been announced, but the last 18 months were a time where the Blockchain industry has not only matured but also emancipated itself from the cryptocurrency market. Cryptocurrency is just one application enabled by DLT, and despite all of the naysayers (just follow Nouriel Roubini’s Twitter feed), there is a lot more developing out there than what the media is able to cover. So, what is the status of blockchain adoption in different industries in the middle of 2019, with the tokenized economy already becoming a strategic planning reality?
First, let’s be realistic: industrial end-to-end blockchain projects are still limited in number and many projects are in stealth mode. As we have seen and discussed so many Blockchain use cases one can sometimes get lost in all the possibilities (note that some clarity and an overview has been put together for the IoT space by Deloitte and ourselves here). Analysts slice and dice things in different ways to map out the future of DLT, and most agree that the market is structuring into a few verticals developing at different speeds, such as Fintech or Automotive/Mobility (if you want to read some really interesting overview analysis about some relevant use cases from these industries, check out what Blockdata does for example). There are also horizontal domains such as track and trace (or supply chain management) which apply to most verticals. This post tries to give an informed view about the status/maturity of the efforts in these sectors — and is a view from my daily job as the Chief Commercial Officer at RIDDLE&CODE in Vienna, driving sales and business development internationally.
What we are doing at RIDDLE&CODE is building the core infrastructure to enable the token economy from end to end. Our offering tackles the critical point at which we connect the software of secure DLT systems to the real world of physical goods and machines.
We bring trusted identity to machines and give them transactional capabilities on any blockchain, which is one of the ultimate goals of most DLT-based projects. These challenges typically arising during any industry-grade project, so we are at a point where we can observe the state of the market and its different segments quite well.
We have been selling to most segments and have a broad vantage point to see how the market is structuring in the real world, not just an analyst’s model. In the two+ years that we’ve been active in these different fields, we’ve seen the scope of our projects being extended more and more. We’ve moved from first Proof-of-concept (PoC) projects, helping industry clients to understand the scope of DLT, to much larger scale MVPs, finally also launching commercial solutions where there is a contractual service delivered to an end-user in 2019.
No surprise, the most significant investments, for now, are in Fintech
One of our latest announcements shows the area where the activity is most mature. That project is live with this Swiss customer bank, has been thoroughly audited and is accepted by the regulatory office in that market. Yes, no surprise here, it’s Fintech that is bringing large development projects for infrastructure builders like us. The main reason is, of course, that the asset class of crypto is in the market, so people and financial institutions need to trade it safely and keep it securely in custody, and they are active to a degree that depends mostly on regulatory clarity in their territories. So rising pressure from the local authorities is forcing financial institutions to start adopting professional and future-proof solutions now.
Other flourishing projects in the FinTech space are working on fully digitizing the issuance of traditional financial instruments such as bonds, but we see them more as a first step that also paves the way towards asset tokenization. These projects are building the foundations and are usually still kept relatively simple (yes, this is an exaggeration, of course), answering just part of the problem while we aim at building full end-to-end platforms. But assessing the consequences of these changes the value chain, it becomes clear how some traditional players can become superfluous, and one can easily understand that the seismic shift here is only beginning.
In any case, the need to offer banking-grade solutions that address the difficulty and risk of managing blockchain-based digital assets has grown. Financial institutions the world over are looking to implement custodial solutions for their clients and require sophisticated, secure and flexible key management solutions. There are several of these projects in our pipeline today, and they are much more significant than the first prototypes and stand-alone solutions we can see out there today. Large financial institutions are now starting to invest in solutions that have no single point of failure, have an un-hackable offline components, are resilient to human errors and offer flexible scenarios to suit different types of transactions. The process required to validate a 10-million-Euro transfer should differ significantly, for example, from what is required to expedite a few Euros worth. Early movers in the banking and traditional exchange space as well as aspiring newcomers are trying to grasp this rising business opportunity by offering the most flexible and robust platforms for tokenizing not only traditional financial asset classes, but a larger part of the physical part of the economy in the future.
Real DLT-based solutions in Energy and Mobility
We see two other markets following closely behind with projects that are no longer PoCs, even if they might still have a bit of an exploratory aspect to them. They are the Energy market and the Mobility sector. The “verticality” of the latter is less apparent because it has many touchpoints, but in the end, there is no ideal way to define the market.
A central requirement for mobility solutions is the need to securely identify the vehicles and any other entity it interacts with (people, other vehicles, pay-booths, sensors).
We are active members of the Trusted IOT Alliance where our machine identity and car-wallet solutions have been demonstrated in different use cases and were recognized by an international jury. We are also busy working with one of the world’s leading car manufacturers on the future of Mobility and will be making a public announcement this month about it. Experts in that global company, as well as in others have developed clear visions of how to best handle fleets of (autonomous) vehicles efficiently by using DLT solutions. In our Austrian modesty, we admit to understanding that the market is evolving, but not knowing precisely what it will look like in say, five years. As a consequence, we are developing car wallet solutions with two essential features that are central — whatever the future holds. They bring a secure and tamper-proof identity for the vehicle and enable it to transact seamlessly and securely. Those two features are at the core of our product portfolio and serve as the ideal pillars on which to build a car wallet, whether the primary use case is ride or automobile sharing, metadata to reduce insurance premiums, autonomous vehicles’ M2M transactions or something else. This year at Mobile World Congress and Bosch Connected World, we demonstrated our wallet in a mobility scenario built around the seamless access to an electric scooter and saw the enthusiasm such a demo generated for audiences and managers that could touch and use it, something rather novel for blockchain technology. However, the key point is not whether our hardware-based solutions are the ones that automakers or mobility solution providers will trust, but that all car manufacturers have several blockchain projects in the making at this very moment, and the depth and importance of these endeavours have been only growing in the past 12 months. In Germany, automobile production is at the core of the country’s industry, and blockchain-based projects can amongst others, also help with the transparency issues this sector has had over the last decade and, on a global scale, also help incentivize more sustainable and desirable behaviour from all of us on the road.
Also, the trend towards more liberal regulatory regimes is driving European energy markets to evolve. P2P energy trading, for example, requires secure yet transparent solutions to settle between production facilities, smart meters, charging stations or energy storage devices. All of this is needed to offer solutions that can incorporate renewable and decentralized energy sources on a broader scale and to turn consumers into prosumers, allowing everybody to do something to save energy and fight the climate change. Utility companies are now professionalising their approach, preparing their backends and selecting devices and components to build decentralized, smart and trusted grid architectures (see also here).
Many other verticals are still active although still in the PoC stage
Areas where we are still in the PoC stage (at least as I write this in mid-2019) include Fine Art and premium fashion goods. Our project with the Tretyakov gallery is still underway. In it, we provide the Blockchain component to democratise art patronage. We have successfully, for example, integrated a blockchain-enabled secure tag into a high-end timepiece making counterfeiting impossible, but also enabling disruptive new customer experiences. For the most premium goods, there can even be a customer journey after the item is sold. This project is a test bed to work for tokenizing objects of value and enabling the registry, underwriting and providing warranty use cases to drive this new economy forward.
Track & trace, our only horizontal
Supply chain management has always been a hot topic in the industry with hypothetical transportation use cases dating back several years. There have already been countless trials and PoCs with several full blockchain projects announced. Objectives vary from proving a geographic provenance (e.g. Italian Fashion), a brand (e.g. high-end timepieces), date of manufacture, conditions during transport (e.g. temperature) or the absence of child or slave labour in the mining of minerals or production of clothes or food.
The idea is usually to use the Blockchain to simplify processes while making them more transparent and secure.
We’ve seen much interest in the Aerospace industry for managing spare parts in an aeroplane. At the end of its lifecycle, a part can have generated a suitcase-full or two of paper documentation.
In the oil industry parts used on site may be worth several thousand euros each, and their usage must be optimized to control costs.
Finally, in the med-tech industry, we are working with a leading international player on the life cycle management of critical technical equipment for surgery — and how these parts can be not only tracked across the supply chains involved, but also allow the vendor to settle with the different health systems more efficiently.
The golden middle: innovating and selling, and keeping the right balance
Innovation remains at the heart of it all, and when I’m at (pre)sales meetings representing RIDDLE&CODE or helping to build up industry association work groups, my role is most often to provide a vision of what is possible with these disruptive new technologies that DLT systems are. In the meantime, our tech team, despite its still modest size, keeps spending a lot of effort on R&D. You can get an idea reading this medium post.
Other partnerships, such as the global collaboration we have established with Deloitte, illustrate how central innovation is to everything that happens in the market right now and what we aim to do. So the association of Deloitte’s leading regulatory, process and audit capabilities associated with our blockchain technology has helped us ready companies to launch some of our innovative projects. Relationships with other consulting or integration companies are also fruitful and bring insights into the kind of projects global players are handling, confirming our assessment of the sector descriptions given above.
So, to sum it up, the areas we see structuring the DLT market growth are
1. Fintech (especially custodial solutions for crypto)
2. Mobility, where we’re part of industry alliances and are working with a growing number of industry consortia
3. Energy, where we’re working with providers such as Wien Energie
4. Other markets such as luxury and fine art that are still a bit niche, and a very interesting testbed for future asset tokenisation models — here we see a clear trend, as soon as a leading firm announces a larger scale blockchain project, competitors can no longer ignore the differentiation potential and follow suit
5. “Horizontal” Track & Trace (or supply chain management) use cases, where many projects are underway — although few have tackled the integration of the physical objects with truly open platforms.
The DLT space must consolidate, and we need to see what effects ‘stable coins’ and other technical DLT innovations will have on the price structure of using blockchain backends on a broader scale, bringing more robust business modelling to the market as a whole. Deep change is already afoot with more and more updates from the major players. We are beyond ‘just’ efficiency gains based on the lightning protocol, for example, or the proliferation of smart contract features. IOTA, Corda or Ripple have shown major advancements of their stacks over the past 6 months alone. The consortial blockchain database efforts that we help drive at the IPDB Foundation are another example of this.
With this rapid pace of DLT platform evolution & innovation, we can expect solutions for most of the current pain points that are often cited as bottlenecks for blockchain adoption by critical voices.
At RIDDLE&CODE, I have the exciting mission (as you might all have in your DLT projects) of helping our clients and partners identify what is already possible today and how the benefits of blockchain-based solutions can tackle some of the challenges of our complex world.
The success of new DLT solutions deployed by the leading sectors described above is crucial to show that more transparent, sustainable and secure solutions are possible and should be planned here and now. Fairness and incentivization schemes can be integrated into these new tech layers, renewing the political and economic foundations that underly our societies but have been more and more neglected over the past decade(s) — just in case you were wondering why more and more senior experts and innovators have joined this space in the past few years. Despite crypto winters and scams, I haven’t regretted my move once, and look forward to seeing all of this evolving into a more transparent and consensus-oriented future.