When the legendary Bitcoin white paper was published in 2008, it drove blockchain hype to fever pitch. And today? Where does the technology stand, where are blockchain applications heading? And how can companies engage with them in a meaningful way? Looking for answers at IBM.
Visitors to the 23rd floor of Munich’s elegant Highlight Towers enjoy a panoramic view – taking in everything from the whirl of traffic far below on the city’s main thoroughfares, to the distant outline of the Alps on the horizon. It’s certainly no coincidence that one of the Towers’ residents is IBM. The tech giant professes to have an overarching view of digital transformation. Exactly the outlook from a modern high-rise.
Right now, one of the technologies being championed by IBM (and garnering considerable publicity for the company) is blockchain. Having put the technology through its paces in a range of scenarios, IBM is a firm believer in the benefits. Then again, IBM, whose last reported profits were just under $13 billion on annual sales of around $80 billion, also senses a fresh business opportunity. IBM is therefore pushing the pace. Around 1,600 developers and consultants at IBM, which employs 366,000 people worldwide, are working on blockchain applications. Their aim: to get businesses interested in blockchain, start a conversation and drive projects forward.
IBM Food Trust uses open source technology and industry standards
Three of these IBM people are Neele Franke, Angel González and Christian Schultze-Wolters. They are now seated on ergonomic bar stools in the meeting room. Franke advises companies and develops blockchain strategies with them; Gonzalez collaborates with customers in software and process workshops; and Schultze-Wolters is in charge of the overarching blockchain strategy for German-speaking markets. Here are the answers of the three experts in ten condensed blocks.
Tried-and-tested, functioning database systems have been around for some time. Why do companies need blockchain applications?
Blockchain is not the answer to everything. But
big data and the Internet of Things are making supply chains and business networks increasingly complex and decentralized. To function properly, these networks and supply chains have to be built on trust and transparency, and be seamlessly digital. This is exactly what blockchain can deliver. Data storage on a blockchain is consistent and decentralized. Data can be quickly exchanged within a highly secure environment. Transactions are traceable at any time across multiple companies and even industries, and blockchain uses a relatively uncomplicated open-source architecture.
2 Critics argue that blockchains are inflexible in terms of participants, that they’re too slow and not always secure. Is that true?
Within a private blockchain, content is not shared publicly, but only within a clearly defined, verified group of participants. Care has to be exercised in how certificates are allocated, and this ensures participants are only admitted to the group after extensive checks. IBM is also keen to point out that it uses open-source
hosted by The Linux Foundation, which permits fine-grained control of read and write access. Hyperledger Fabric now achieves around 3,500 transactions per second. For comparison: the cryptocurrency Bitcoin, which is based on a public blockchain, only manages about seven transactions per second and consumes the same amount of energy. Hyperledger Fabric
Regarding security: blockchain applications are not risk-proof. Smart contracts, for example, contain if-then conditions that automatically trigger downstream processes. If the code is vulnerable at this point, there will be damage downstream. The coding therefore has to be comprehensively quality-assured.
Where and how can companies get started with blockchain?
IBM distinguishes between three approaches:
join, organize and build. The simplest approach is for a company that is already part of a supply chain to join an existing blockchain platform. Next is organizing: a company might have co-developed a blockchain solution with peer organizations and now wishes to expand the project and bring new partners and participants on board. In the “build” approach, the company starts out with a specific project or idea in a particular field – 3D printing, automotive or medicine, for instance – and wishes to sound out the feasibility of evolving it into a blockchain application.
Are there any examples of business blockchains that already exist and work?
Food Trust is a project initiated in 2016 by IBM and Walmart, the world’s largest retailer, to digitally track the food supply chain. The blockchain stores product information such as the farm origin, batch numbers, processing and expiration dates, as well as shipping details such as cold chain compliance. Every transaction and change is traceable in real time, and all information is checked and approved by participants. The records, or ledgers, are tamper-proof. This saves participants considerable time and expense in case of delivery problems or should items need to be traced and possibly recalled. The transparent, authoritative ledger can serve as evidence in the event of liability claims. In 2017, the blockchain was joined by ten more companies, including Dole, Nestlé and Unilever. The solution went live in summer 2018, and Walmart is now inviting other companies in its supplier network to join. A special “blockchain council” sets down the rules for participation, tech development, costs and the sanctions for rule violations.
How else can blockchain be used?
A second example:
TradeLens is a blockchain application for global trade started in 2017 by IBM and the world’s largest container shipping company Maersk. It has been live since the end of 2018. The blockchain is an integrated IT platform for shipping data, documents, customs declarations and IoT data. Participants can access this information in real time and collaborate securely and efficiently. In the future, they will also be able to use IoT and sensor data, for example to check food temperature or container weight. Previously, this information would have gone through a disparate mix of channels: assorted IT systems, e-mail, fax and courier. Sometimes, it would not have been available at all. Nearly 100 organizations currently participate in TradeLens, including freight forwarders, ports, customs authorities, banks, logistics service providers, and companies that ship goods worldwide. The original plan was a joint venture, but this was changed, also due to criticism from industry. TradeLens is an open, cross-industry solution. Seven shipping companies are on board and all are treated equally. As with Food Trust, the approach is collaborative, and a blockchain council is due to be set up shortly.
Back to security: who or what guarantees that the data flowing into the blockchain is authentic, true and not forged?
First, in a private blockchain there is a defined set of verified users. Moreover, in future, complementary technology will be deployed to either ensure only authorized users can enter data, or to identify data as tamper-free and authentic through defined criteria and certificates. One example are
: tamper-proof digital “fingerprints” that IBM is currently working on. A crypto anchor is a tiny, self-sufficient computer that is smaller than a grain of salt and expected to cost less than ten cents to produce. The devices have an embedded security code to authenticate a product with a tamper-proof signature. This enables the miniature device to monitor, analyse, communicate and respond to product data. In tandem with a blockchain, this is expected to make supply chains even more impossible to manipulate. IBM plans to ship the first models to customers within the next 18 months. crypto anchors
7 How exactly does IBM go about things when a company expresses interest in blockchain?
Design-thinking workshops play a key role. In these workshops, IBM works with customers to stake out the requirements, effort, capacity and potential of a blockchain. Then comes the development of a minimal viable product, a pragmatic mini-iteration with a defined set of features requiring little upfront investment. Each iteration is practice-tested, and every three to four weeks the teams revisit the decision whether to continue the blockchain project – or not. The fact is, sometimes a workshop can lead the project down a path that neither IBM nor the customer could have expected.
8 Which industries are showing most interest in blockchain applications right now?
According to IBM, supply chains are a frequent touchpoint for blockchain in a number of industries, and are the subject of around four in five IBM projects. One example is the automotive industry – not just because of the product complexity and extensive supply chains, but also because e-mobility, car sharing and other new services create a growing imperative for solutions that can connect and work across previously separate industries.
Blockchain can disrupt the farming and food industry
IBM is also seeing more interest from the pharmaceutical industry to ease the complexity and extensive record-keeping that is mandatory when developing new drugs and bringing them to market. For pharma companies, securing IP rights is also a vital part of the process – and here too, blockchain looks a viable way forward. Retailers, meanwhile, are experimenting with their own blockchain approaches to simplify and bring greater transparency to their often complex agreements with suppliers, and also to “cut out the middlemen” in their supply chains.
To what extent is blockchain a business case for IBM?
IBM uses the open-source Hyperledger Fabric, so does not sell its own proprietary technology. But blockchain still offers IBM good business opportunities. IBM can host and operate blockchains; it can advise customers on all aspects of digital transformation; offer integration services for existing systems; and market complementary supporting services and technologies (like crypto anchors). With blockchain, IBM aims to sell integrated consulting
and implementation around the key digital transformation challenges of big data, IoT and AI. For IBM, the technology is also a means to elevate its profile vis-à-vis customers as a player that can offer not just IT systems expertise but also knows their way about the processes and workflows in particular industries – a player that knows down to the smallest detail what makes the pharma or automotive industry tick, or logistics or banking.
10 What about the profitability of blockchain from the user’s perspective?
For business, blockchain is an opportunity to rethink and restructure networks and co-operations, and to reduce cost and time by making processes leaner and faster or cutting out supply chain middlemen. However, the big question is whether workable new business models will emerge. In the Food Trust project, for example, it is becoming apparent that the blockchain will also enable smarter handling of waste in the supply chain. Blockchain applications can be tools to monetize data insights, offer new services or serve as a means of payment. But what blockchain cannot do – at least not yet – is deliver a rock-solid business case with abundant ROI.