Blockchain has been described in many different ways – exciting, thrilling, and bringing fear into the heart of the financial industry. It’s been described as distributed legers and a new means to enable trust of unknown parties. In the eyes of the world, blockchain is most closely associated with cryptocurrency, although that’s missing the mark by a wide margin. Blockchain has many practical uses beyond Bitcoin and its ilk.
What is the Blockchain?
“To dispel any confusion, think of blockchain technology as a distributed business process execution network,” says Carl Lehmann, Principal Analyst at 451 Research. “It enables known or unknown parties to do business with one another using shared business processes codified in a common shared software application. It can be used to buy, track, and pay for goods and services.”
Blockchain is an alternative way of enabling transaction execution and building relationships among supply chain members and companies, their customers, and their business partners. Its distributed ledger design can minimize or eliminate costs associated with:
- Processing transactions
- Maintaining Security
- Controlling risk
It does so using consensus protocols. Those protocols do what now requires massive IT infrastructure that is costly, inefficient, and time-consuming to use.
“This is why the financial service industry is so concerned and enamored with blockchain,” says Lehmann. “It takes days to process an ACH, which can be done in minutes in blockchain. Right now, though, a blockchain would struggle to handle the transaction volume of an ACH and the financial services industry is working on that.”
In other applications, and in most business processes transacted across various parties, they don’t operate on this scale. So blockchain is perfectly suitable to enable instant awareness to a change in state of a business practice or transaction among all parties. It’s the consensus protocols that enables that transaction processing, security, and risk management. That’s what makes blockchain unique and that’s why companies are enamored with it and experimenting with it.
Blockchain and the Supply Chain
“Right now the companies that are using blockchain are experimenting with various proof of concepts,” says Lehmann. “There are literally hundreds of business case proof of concepts going on right now. The majority of them – other than the financial markets – revolve around supply chain execution. In my view, the opportunity for blockchain in a business environment is as a new means to enable business communities or supply chains.”
One of the challenges of enabling a blockchain in a business environment is to create a minimal viable ecosystem – that means you need to get enough parties involved in a blockchain business network to enable effective execution.
For example, you’ll hear about trade finance or global trade and blockchain is used for that due to complexities associated with import/export laws and regulations, bills of lading between logistics folks, government regulations on a global scale and such. A blockchain can be very efficient when used to bring together disparate global parties as it enables instant awareness of transactions or changes of state.
That minimal viable ecosystem is, in effect, a supply chain. “To me, companies that want to improve their competitive stance in their market need to look not at their rivals in the industry, but compare their supply chain to their rival’s supply chains in industry,” says Lehmann.
Supply chain competition is now a renewed focus with blockchain as a new, transformative enabling engine to regenerate, repower, and restructure supply chain execution. Companies that value their supply chain as a competitive advantage in the market, and want to continue to do so, should consider blockchain technology to get their core supply chain partners established within that ecosystem to use the supply chain as a competitive weapon.
How Can I Introduce Blockchain into My Organization?
In order to establish a blockchain, the technology needed is basically a blockchain node setup. Each participant in a blockchain business network needs a node. Then you need an administrative function that allows permissions.
Most all of the major IT vendors out there – IBM, Oracle, SAP, Microsoft, etc. – have blockchain initiatives underway. Right now IBM is the pioneer in terms of enabling the technology and bringing it to market. All of those vendors, and others, have fundamental version 1 implementations of blockchain technology that typically come from the Open Ledger Project or the R3 Consortium.
What is not offered right now is proof of total cost of ownership or return on investment. It’s still immature. Many proof of concepts are engaged by companies that are trying to solve unique problems or have discovered that blockchain is a unique competitive advantage – in both cases they don’t want to share the results. That will change in the next couple of years driven by vendors as they productize their services.
From an IT perspective, blockchain will be offered as a service. You’ll go to the vendors and subscribe to their blockchain service the way you do for cloud and other IT services now. However, you’ll need to be a participant in a business network, so establishing the minimal viable ecosystem is something you’ll need to do as an enterprise.
IT vendors will offer professional services resources that enable companies to build out these ecosystems. They encourage the use of blockchains to build out these networks and can help facilitate that for various organizations.
“Because blockchain technology is a distributed network technology it affects all aspects of IT and business operations potentially,” says Lehmann. “As a result, we’ve crafted the Blockchain Center of Excellence here at 451 Research. All analysts across our channels have researched blockchain to understand how it affects their IT domain. They all contribute to our Center of Excellence and we publish reports on the use of blockchain in the business world.”
Lehmann believes that blockchain will begin to make serious headway in the business world in the next two to three years. Proof of concepts will evolve into nescient but capable business networks.
So start thinking of how blockchain can help your organization now.