How to talk to a company about blockchain: a hypothesis — 1/2
What is it, how does it work, can it be useful?
Blockchain technology begins to intrigue companies: CEO, CTO, business and project managers ask questions, express doubts, ask for clarification. There are few experts there, and I can not consider myself such. But I’ve spent the last few months - almost two years actually - documenting, studying and even “getting my hands dirty” with code and frameworks. I do not want to become a blockchain developer, but to understand some aspects and be able to give comprehensive answers, at least we need to have an idea of what is hidden inside the blocks. After all, they are blocks, not black boxes (speaking as engineer…).
Let’s assume that a company representative asks you about crucial questions about blockchain: what is it? Can it be useful for us?
First of all, give a brief definition, for example:
“The blockchain is a technology that allows to build and manage a sort of distributed and unalterable digital register in which the transactions (of any type) are validated by the nodes of a particular network.”
The first thing you should explain is the difference between a public blockchain (and you will give it the example of Bitcoin or Ethereum) and a private blockchain (permissioned). I’ve already talked about it in a previous article, so do not make me redundant.
I remember only that in a private blockchain (or DLT, Distributed Ledger Technology) participants are known, there are tangible and/or intangible assets to exchange and there are procedures that guarantee confidentiality, allowing only the entities directly involved in a specific transaction to access their data (selective access and endorsement). With specific programs embedded in the blockchain (smart contracts) it is also possible to manage transactions automatically, according to defined, secure, verifiable and certified terms executed within the blockchain.
In our example we speak of private blockchain. We have to understand, at least broadly, if the company could benefit from this technology.
There are several flowcharts around the web that allow you to get a rough answer quickly. One of my favorite is the one below.
In short, if a company is part of a developed business network, with several participants like partners, suppliers, customers, shippers, satellite companies the idea of experimenting with blockchain technology could be taken into account.
At this point, you need to take a couple of examples to then list the possible benefits of adopting the technology.
A good example to be done is that of the supply chain; not surprisingly, it is one of the sectors most interested in blockchain, seen as a sort of “supply chain operating system”.
Generally, there are several parties involved in the supply chain, with different systems, protocols, databases; sometimes the same data — regarding the transactions and transfer of goods — are stored in a non-coherent or incorrect way. The various phases are subject to validation and controls, often redundant. The precise and rigorous traceability of products can still be problematic. In addition, the intervention of third parties such as banks, insurance companies, regulators is often required.
All this causes problems of efficiency and cost increase.
Using a blockchain means having a mechanism that enables and “structure” the trust between the parties: each relevant participants keeps its own copy, always updated, of the “ledger” of the transactions. The data are validated, identical and always available for control. There are also more direct and faster interactions, managed by algorithms and pieces of code (smart contracts).
One of the most convincing case studies is linked to the tuna traceability system developed in Indonesia by Provenance. This platform allows companies to efficiently and transparently track their products. In the specific case, supply chain are linked to the end-to-end traceability of a product: from the fisherman to the processing industry, from the dealer to the final consumer.
Each phase of the trip of the fished tuna and its parts is recorded in a blockchain thanks to technologies like mobile, RFID tags or QR Codes, adding to each phase the certifications and carrying out controls automatically, thanks to the smart contracts.
The flowchart shows the supply chain and the steps recorded on blockchain, steps that consumers can consult via an app.
Another visually interesting use case to be proposed is that of letters of credit. Simplification is obvious.
In summary the possible advantages that can derive from the use of a well designed blockchain are:
· Immutability, because we are dealing with a data structure in which it is only possible to add data, but not to change and delete them (append only).
· Security and redundancy, because the data is encrypted and is decentralized, with consistent and validated copies owned by several parties.
· Reduce costs and increase efficiency, because the need to rely on third parties (or because they are enabled to participate in the blockchain) is reduced, because transactions and payments are faster and because many steps (checks, measurements, etc.) can be carried out, stored and made available to all the parties involved automatically.
. Scalability, because adding a node, such as a supplier, to an existing blockchain is a lower cost operation than the solutions currently used to integrate a new entity into the business chain.
If we then think about the integration of blockchain with technologies such as IoT, the possibilities and benefits increase exponentially: consider, for example, the the cold chain management and control.
Probably at this point we managed to intrigue our interlocutor. But two questions, sooner or later, arrive.
“Ok, but what’s a blockchain in practice?”
In a nutshell, a blockchain is nothing more than a file (we can think of it as a log file) that needs a specific program to be read and managed: instead of using Excel, the software that implements the functionalities of a blockchain is used. This program also manages the communication between the nodes of the network, the authorizations, coordinates the validations of the transactions and their collection in blocks etc. Communications between the various nodes of the network take place via the Internet with APIs and REST-type architectures.
The file and the program reside on the servers (or in the cloud) of the relevant participants in the business network.
I have simplified to the maximum but to understand more we need to deepen. Things become a little more complicated. In the next article I will go into more detail, using IBM’s Hyperledger Fabric reference framework.
The second question that surely will come is:
“It all sounds interesting, but is it possible to integrate a blockchain with the systems, procedures and software (eg ERP) already present in the company?”
An answer could be “Yes, considering the blockchain a level of control over an ERP or another data control system”. But it will not be a simple operation. It must also be considered that it is necessary to convince even the partners of their business network to accept this technology. The challenges will not be lacking, as evidenced by the case study mentioned.
But the adoption of new technologies is always a complicated and sometimes frustrating process. Think about the adoption of computers in companies or at the entrance of the Internet and the web in the world of industry, commerce and finance. It can be said, in retrospect, that the efforts made are worth it, are not they?