Blockchain: from irrational exuberance to genuine adoption
By Alain Chevée, Director, Geneva Management Group
Thanks to Bitcoin and other crypto currencies, blockchain has become associated with speculators and maverick investors. But with the excitement around cryptocurrencies having tempered somewhat attention is now turning to blockchain’s more practical uses. The industrial and commercial sectors, which make up the bulk of GDP in many developed economies, are building applications that will increase their efficiency and overall transparency.
Companies that embrace this shift not only stand to improve their bottom line, but also put themselves in line with the growing societal demand for greater control, traceability and interconnection. Blockchain is a key enabler of all of these things. And, in the same way as the internet led to the complete overhaul of certain trades and processes in the early 2000s, blockchain is creating a profound transformation in information management.
Gradual adoption by major industries
Nestlé and Migros, leaders in the Swiss agri-food and supermarket sectors, recently announced that they’re using blockchain technology to improve and guarantee the traceability of food from producer to final consumer, or even from farm to table. The fact that such big companies are embracing the technology is proof that blockchain is discreetly moving past the irrational, cryptocurrency-fuelled exuberance of 2017.
The objective is to create a trusted, shared, non-alterable system that guarantees key players in an industrial process access to the information concerning every step from manufacturing to distribution, and even to the end customer.
Let's illustrate the use of the Blockchain with a simplified case study involving the professional collaboration of a drug manufacturer, a logistics company, a network of pharmacists and an audit company to ensure the traceability of each batch of medication.
First, at the end of the manufacturing process and using a battery of connected sensors on the blockchain, the manufacturer records the date, quantity, temperature, quality and other relevant information of each batch. This data is then accessible to all members, but they cannot under any circumstances modify them.
Once the boxes are in the logistics company's truck or warehouse, the logistics company confirms the date of pick-up on the Blockchain. This time-stamped confirmation then officially confirms the transfer of responsibility to the logistics company, which can then know the status, in real time, of all its stocks.
Upon receipt by the pharmacy, a new transfer takes place with a new change of responsibility. The pharmacist's explicit acceptance of the boxes can even trigger an automatic payment to the original producer via the blockchain (this is known as a "smart contract"). Finally, the auditor can then track the entire journey of the products and their quality by having access to a single system, knowing all owners of the product at all times.
A first analysis of this information system could lead one to wonder how this differs from a simple database shared between the different members of the process. The answer lies in several points:
- Decentralisation: there is no owner of the blockchain who could take control of it.
- Transparency: all members can be allowed to own a copy of the blockchain, it is the distributed feature of the blockchain.
- No modifications: the blockchain is unalterable. Indeed, a member will not be able to backdate the receipt of a batch because other subsequent transactions will be recorded and will prevent the modification of previous transactions.
- Authentication: the operations registered on the blockchain are verified and come from sources using their own private keys
- Smart contract: a classic database cannot offer such payment triggering functions.
The age of transparency
The implementation of blockchain solutions for industrial activities raises new questions. For example, as part of the process mentioned above, the following topics should be addressed:
- Who sets up the blockchain?
- Who sets up the parameters of operational governance?
- What about the trust in intelligent sensors or other people who have to enter information about the blockchain? The quality of the information entered is always essential.
- How to protect access to information to prevent an unscrupulous member from disclosing all historical exchanges in the blockchain?
- What about hyper-transparency? Is it necessary, when a member requests information on a batch, that he can know all movements of boxes since inception?
It’s hard to provide an exhaustive list on the uses of the blockchain in the industrial and financial sectors because they are potentially infinite.
We must, however, realise that the use of the blockchain is gradually and profoundly changing the management of information within supplier, intermediary, and customer ecosystems. Each new concrete application in one of these ecosystems will provide others with a new example of use and indeed stimulate other uses.
In our experience, many large companies are setting up working groups dedicated to the blockchain and that they’re finding concrete applications for it. By combining business and blockchain specialists, these companies are completely changing the way their industries work.
So, far from headlines about Bitcoin and other digital currencies, a quiet blockchain revolution is brewing. Thanks to the blockchain, companies will simply be more efficient and transparent within their supplier or customer universe, and therefore more competitive.