While cryptocurrencies have dominated media attention, and allegations grace many a front page, few realize that many of the largest companies in the world are currently taking part in thousands of blockchain technology pilots. These companies are well known, global, and cover diverse sectors: Barclays, Deutsche Bank, J.P. Morgan, HSBC, IBM, SAP, Google, Microsoft, Accenture, Cisco, GE, Maersk, Fedex, DHL, Daimler, BMW, Ford, Renault, Genentech, Pfizer, Samsung, NTT Data, Hitachi, Baidu, and many more.
Since decentralized blockchain systems require a community of many players to be effective, these companies are banding together in industry consortia to test the technology. Today there are over 100 blockchain consortia. These pilots have demonstrated clear returns in a number of key sectors. These sectors and their associated use cases include:
Supply Chain Management
- Product traceability (Track & Trace)
- Product provenance & authenticity
- Fighting Counterfeit Drugs
- Electronic Health Records (EHR) Interoperability
- Cross Border Payments
- Supply Chain Financing
Blockchain and distributed ledger technologies (DLT) can provide innovative and powerful solutions in each case. First though, let’s take a look at centralized processes in the enterprise ecosystem as a counterpoint to the new decentralized systems.
Centralization in the Enterprise
Most enterprise-grade software infrastructures are centralized systems that provide services within a single company, primarily to its employees. These systems may also provide restricted access between a company and its direct partners or vendors. For example, most large companies have an enterprise resource planning (ERP) system which integrates all their major business functions such as procurement, sales, HR, accounting, etc. to enable more efficient operations. Though internally integrated, ERP systems are very challenging and expensive to integrate with other systems.
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There are many other centralized enterprise software platforms that help companies automate and streamline other important business functions like marketing, business intelligence, e-commerce, etc. All these various systems are typically hosted under centralized cloud architectures. Integration of different enterprise software systems within a company or across companies can be complex and costly, so many systems become silos of data and functionality.
Data sharing across an ecosystem is very important for improved productivity, so each sector has developed centralized solutions to span their ecosystems. Ecosystem data sharing invariably links competitive groups. This reality plus the need to maintain trust, protect against hacking, and improve interoperability has led to two main types of solutions: 1) Government-mediated for regulated industries, and 2) single company mediated, or vertically integrated, in unregulated industries.
Here’s a quick overview of some examples of centralized ecosystem-level infrastructures that are currently in place:
Supply Chain/Logistics: The two largest names in retail in the US are Walmart for brick and mortar ($500B in revenue) and Amazon for online ($178B in revenue, 40%+ of online orders). Both giants have the most efficient and technologically sophisticated supply chains. To provide process transparency and control and drive down costs and shipment time, both leaders have centralized and own the majority of their logistics and warehouse infrastructure. For example, Amazon has invested billions of dollars to build hundreds of warehouses, deploy thousands of robots, and build a fleet of planes and delivery trucks. Both Amazon and Walmart have developed their own centralized custom software and employ hundreds of thousands to operate their infrastructure.
Healthcare: In many countries, patient health records are being converted to electronic form and stored in electronic health record (EHR) systems. Despite interoperability standards to promote more data sharing, few if any of these systems can successfully communicate with each other. As a result, government-backed health information exchanges (HIEs) have been funded and set up to create a centralized repository of patient records. Building a country-spanning, centralized HIE infrastructure is a slow process and for the US a goal of 2024 has been set by the government.
Financial Services/Banking: The banking sector in each country is generally overseen by a central bank which is often controlled by the State government. In the financial services sector securities transactions are typically mediated by centralized clearing houses. Clearing houses act as an intermediary to securities transactions to clear and settle the transaction, regulate delivery of the instruments bought or sold, report trading information, and reduce counterparty risk (options/derivatives).
Some of the main challenges with these large centralized systems include:
- Need for trusted intermediaries
- High costs
- Multiple versions of the ‘truth’
- Need for record matching or reconciliation
- Single point of failure
For the end user, the result is slow, expensive processes that leave much to be desired.
Blockchain in the Enterprise
Enterprise blockchains are typically permissioned systems in which only known partners are part of the network. This is different from public blockchains (like Bitcoin or Ethereum) in which nodes are anonymous and all information is publicly available. This approach is generally required by corporations because they do not want to share their confidential information with unknown third parties.
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Permissioned blockchain systems enable trusted peer to peer transactions and distribute transaction data across a network so that all authorized players see the same information. Decentralized blockchain systems are optimized for working across an ecosystem. Key benefits include:
- No need for trusted intermediaries
- More cost effective
- No need for costly record matching or reconciliation
- Reduction in hacking risk
Many real-world live deployments are projected for 2019 and this will be just the beginning. Industry leaders like Lori Beer, CIO at J.P. Morgan, anticipate that blockchain technology will become the standard replacing existing infrastructures.
Radhika Iyengar-Emens and Jorden Woods are Silicon Valley serial entrepreneurs and investors at StarChain Ventures. Radhika is a TEDx speaker, Silicon Valley Woman of Influence, and is a blockchain expert in healthcare. Jorden is a Caltech-trained astrophysicist, has raised $175M+ as an entrepreneur or advisor, and is a thought leader in enterprise blockchain technology. Radhika and Jorden are focused on the intersection of enterprise blockchain with AI, machine learning, and IoT.
Copyright 2018 DoubleNova Group / Paradigms Consulting Group