Stefan Petzov, VP Technology & Innovation
In this post, I will focus on the use cases beyond the Crypto Currencies and tokens.
I will go through different enterprise business cases and their maturity level. And the position that the Telcos and Swisscom can play in this new economy.
I’ve been involved on and off of projects with blockchain for the last four years. We started with an application on the Bitcoin blockchain, high-jacking the comments space for application information. Then moved to Ethereum and finally to Hyperledger.
The Distributed Ledger (DLT), the technology underneath the Blockchain, is still in its early days – there are still technical and privacy issues that prevent the mass adoption, but at the same time there are a growing number of use cases, that could simplify business processes across the industries. I will go through different business use cases and will look at how we can position Swisscom for maximum benefit to our customers.
A brief overview of a blockchain stack
The benefits of using a blockchain come from several distinct parts of its stack:
- User verification using a public/private key. Even if the key management is performed outside of the blockchain the access control of the system is based on solid ground.
- Transaction validation – each transaction is checked and validated by several parties against specific protocol before it is confirmed and written in the chain.
- Transaction finality – each transaction in the blockchain is written “in stone”. It cannot be modified or deleted. If a correction is necessary, a new transaction is created, correcting the status, but not deleting the wrong one.
- Smart contracts – a computer logic that can be activated in the blockchain. It can be used for authentication, access management, asset transfer etc.
- Distributed – every participant has the same copy of the ledger as everyone else. The decentralization improves the throughput, but also adds latency challenges – the time needed for a transaction to be propagated to all participants.
- Decentralized – Every node can validate every transaction, as they all have the same access to the historical information.
- Ran on public infrastructure – for some use cases.
Even if none of these benefits are unique to the Blockchain, combining them in one platform can provide the underlying security layer that will bring data integrity and protection to many existing software solutions.
Potential to be Disruptor
The digital constraints that a blockchain enforces – user verification, transaction validation, finality, and distribution could make it a good fit as a replacement for intermediaries in different supply chains.
If a party’s role is to coordinate other parties and keeps them in check, to aggregate and store assets, or distribute them fairly. Its role could easily be replaced by DLT and smart contracts. This makes the DLT a potential disruptor to some of the functions of banks, insurers, dispatchers, forwarders, etc.
The blockchain on its own cannot enforce rules on the physical objects that are represented in it. This is resolved either by using some form of a digital tether – that blocks the functions of a device or external legal governance enforcement from the real world.
This also puts a limit on the feasible use cases for a DLT. Many cases could be integrated in a classical way using a distributed database with encrypted entries and a software application on top.
Enterprise Use Cases
The benefits of the Blockchain and Digital Ledgers (DLT) come to shine when several businesses with different interests need to agree on a common status of the world. When asset needs to be transferred between parties.
The most obvious use cases are for FinTech, supply chain management and data management.
Supply Chain Management
Supply chain management is an obvious use case for blockchain adoption. Supply chains are often complex, unreliable and difficult to accurately follow. Things that are often problematic in following the progression of current supply chains, including reliability and veracity of record keeping, can be potentially remedied with blockchain technologies and their built-in reliability and accuracy.
With each transaction along the chain entered and verified, there is no disputing how or where the supply chain is moving. The chain of ownership is recorded every step of the way and the records cannot be altered or challenged.
Blockchain provides consensus–everyone on the blockchain can see the chain of ownership for an asset on the blockchain. Records on the blockchain cannot be erased which is important for a transparent supply chain.
Example – The aviation industry is one that can be greatly helped by blockchain technologies. It’s an entire ecosystem of people and technologies responsible for keeping a plane aloft and landing safely.
From equipment manufacturers, maintenance and repair operators, communications systems and a ton of data being produced by the parts on the plane. It is a massive supply chain project that monitors and documents all the parts that are part of a plane and all of the people who touch them.
The airline industry is now able to connect into that ecosystem for a much more efficient requisition of parts, understanding the actual physical condition of the parts, and knowing exactly who serviced the parts and when they were serviced. When this information is transparently shared with other airlines, we can get a better understanding of how these parts are performing.
Stage: Early commercial implementations
Identity Management
Blockchain has enormous implications with regard to identity management. While many fear to have all of their personal information on a single chain, the reality is that individuals will have control over how much information will be provided to each entity.
Blockchain has enormous implications with regard to identity management. While many fear to have all of their personal information on a single chain, the reality is that individuals will have control over how much information will be provided to each entity.
With blockchain, the consumers can choose to become the owner of your own data. Organizations no longer need to collect and store every identity data attribute and thus, no single party has power over customers’ identity. They get to decide what identity data attributes to share with each organization.
A simple example would be someone who has just moved to a new state and is looking to get a new driver’s license. Blockchain can provide a reliable record of the individual’s past licensing and their driving record.
More than one billion people in the world have no official ID. Blockchain has the potential to offer a common solution available to every person and every organization. This has implications for health, for voting, even for national identity.
Stage: Commercial deployments in Canada and Estonia
Simplification and Verification of Business processes
The goal of doing business is to have contracts and transactions that are as reliable, verifiable and transparent as possible. Automation, the kind that modern enterprise resource planning (ERP) solutions bring to the table, has sped up the process, but it is far from perfect. Despite the automation, data stored in individual ERP systems frequently gets out of sync, creating complications when trying to reconcile accounts.
It is unlikely that blockchain will replace ERP systems. The more likely scenario will be for blockchain to serve as a complement to, and a core component of ERP. In the future, many core business processes will run on–or interoperate with–blockchain-based systems. This will enable companies to streamline processes, facilitate data sharing, and improve data integrity.
Stage: Trials and pilots in small permission based implementations
Industrial IoT
The use cases for Industrial IoT are closely related to Supply chain management and internal process and quality optimization. These are the cases where not only the transaction between companies are reliably stored in a DLT, but also the internal processes between departments within the same organization. Blockchain can provide a base for dynamic process flow management and monitoring and a single source of truth for security auditing and quality control.
Stage: Pilots
Smart City
Imagine that a city has a digital ledger in which every house or apartment has a presence containing all relevant information about the home, from property ownership and mortgage balance to transactional data like utility use, property tax assessment, and past and current contractor relationships.
Now imagine extending that to the city’s broader infrastructure. Budget allocation. Smart parking systems. Smart roads with a price per kilometer depending on the traffic. Public services. Tax estimation and collection. Voting for Local government and legislation. Every interaction is transparent, verifiable, and nearly impossible to fake or alter — and just as importantly, it adds to a vast store of data the city can then use machine learning to analyze for future improvements and efficiencies.
Status: Pilots.
Data security and Health Care
Technologists and health-care professionals across the globe see blockchain technology as a way to streamline the sharing of medical records in a secure way, protect sensitive data from hackers, and give patients more control over their information. But before an industry-wide revolution in medical records is possible, a new technical infrastructure—a custom-built “health-care blockchain”—must be constructed.
It should automatically keep track of who has permission to view and change a record of medications a person is taking. It should also solve a key issue facing just about anyone who wants to take blockchain outside the realm of digital currency: miners.
The blockchain-based patient identifier should be linked to hospital records as well as data from other sources like employee wellness programs and wearable health monitors. It could be just the thing to sew together the maddening patchwork of digital systems available now.
Status: Pilots
Insurance
Smart contracts powered by a blockchain technology could provide customers and insurers with the means to manage claims in a transparent, responsive and trusted manner.
In addition to being more reliable and significantly reducing fraud, smart contracts have the potential to dramatically expedite onboarding and other insurance processes, enabling insurers to provide a unique customer experience.
Some of the advantages are:
Reduce processing time from days to minutes
Manual remittance evolves to automatic
Lower (back office) costs
Physical signature replaced through digital signature
Escrow might become obsolete
If regulated, lawyers no longer necessary in simple cases
Status: Pilots
Drawbacks and Risks
As I mentioned before, the technology has some major limitations at the moment:
- Performance – transaction throughput of the system. Depending on the underlying ledger the performance is between 10 and 10000 transactions per second. The lower end is a design constraint applied to ensure the consensus mechanism. In a public blockchain, high transactions rate might allow bad actors to quickly create fake blocks and add fraudulent transactions.
- Too much transparency – many companies are afraid that managing their data in a public or even permission platform could make them vulnerable not only to attackers but also to the competitors. What information will be kept private, what public and who will participate in the platform will not be decided by the participants, but by a regulator in the industry.
- Wrong Finality – having erroneous transactions triggered by bad sensors or devices will require audits and overwriting.
- Lack of developers – as the technology is in its infancy, there are not enough developers to build, operate and audit such systems.
- Business model – the roles are not clear yet. How the platform provider will make money. How the nodes will be incentivized? How the decisions will be taken, or the errors corrected if there is no intermediary or authority? Aligning the interests of the participants is one of the biggest blockers of the DLT adoption.
- Still not enough trust from the business – once a smart contract is triggered it can execute a transaction instantly and finally. The business is not yet ready to give control to machines.
- Lack of regulations – how legal contracts can be translated and related to digital contracts.
- Opposition from the parties that might get disrupted.
Value for Swisscom
Despite the current infancy issues with performance and trust, the distributed ledgers have the potential to change the way we do business. Its biggest advantage is the ability to store facts across different organizations and change these facts simultaneously, while all participants agree with the changes.
Blockchain could be a necessary component of the digitization of the Swiss business – inter and intracompany operations. We can provide the necessary infrastructure and business applications to improve the operations and management across a different business in the 21st century.
It also fits well with the Swisscom strategies:
- Identity management
- Device management
- Industrial IoT
- Fast connectivity – 5G for instant transactions
- Cloud and Edge computing – decentralizing the compute nodes
- Cyber Security – end to end protection from the connetivity to the whole stack.
- Platform integration and Application Development
Conclusion
The current status of Blockchain technology reminds me of the early days of cloud computing. Few people were running a Virtual Box with Linux VM on their Windows computers. Most companies were ignoring it, while Rackspace and Amazon were seeing the potential to transform the way we run a business. During that time, they were improving the technology, hiring the right experts and building a new business model for a new type of customers.
There will be some time before we see the blockchain cases broadly adopted, but then it might be too late to join. The experts will be with the competitors, the know-how will be patented, and the customers will have their vendors selected.
Here is what we can do today to keep us in the game of the future:
• A focus on Technology leadership
• Engage in PoCs with customers to gain experience and trust.
• Prepare experts in-house and on the customer side.
• Implement internal trials for efficiency and process improvements.
• Experiment with different components to improve performance and interoperability.
• Be a gateway between startups and the business
Links:
– https://www.cbinsights.com/reports/CB-Insights_Whats-Next-In-Blockchain-2019.pdf
– https://www.capgemini.com/wp-content/uploads/2018/10/Digital-Blockchain-in-Supply-Chain-Report.pdf