Blockchain in Enterprise: How Companies Are Using Blockchain Today
By Ashley Lannquist, Haas School of Business, MBA. Original article published in Medium and accessible here: http://bit.ly/2G8ZRVt
Last update: January 2018
Blockchain is a breakthrough technology that is sparking innovation and R&D across industries. Most major Fortune 500 companies, from retail and finance to automobiles and airlines, are exploring blockchain technology for its possible benefits in business operations and security.
In this essay, I discuss the following questions:
- What does blockchain R&D and adoption look like in industry today?
- Which companies are leading R&D and investment in blockchain technology, and what use cases are they exploring?
- What are noteworthy challenges and decisions that companies face when considering and implementing blockchain technology?
Blockchain in Industry Today
The year 2017 brought a wave of blockchain research and development, with several high-profile proof-of-concepts (PoCs) and pilot programs across multiple industries. A PoC is an early software implementation or prototype designed to test feasibility and practical potential.
The pace of R&D efforts and announcements accelerated, and the breadth of industries exploring blockchain expanded. While the financial sector has historically led blockchain R&D and investment, with projects beginning in 2015 or earlier, 2017 saw more activity from retail, shipping, telecom, aviation, automobiles, and several other industries.
Proof-of-concepts continue to constitute the largest type of enterprise R&D activity. Outlier Ventures, an early-stage U.K.-based venture firm, curates a corporate research tracker that describes blockchain activity at about 285 companies. It counts roughly 140 companies conducting PoCs, from ABN Amro to Wells Fargo. It also lists about 15 companies that have applied for patents related to blockchain technology, including Amazon, Boeing, IBM, and Western Union.
Companies have also been signaling interest in blockchain technology through strategic investments and acquisitions. In 2016 and 2017, AirBnB, Daimler, Rakuten, and several others acquired blockchain-related startups, while the investment arms of Jaguar Land Rover, JetBlue, Verizon, and others made blockchain-related strategic investments.
Importantly, companies have not yet put blockchain into large-scale production and processes for major commercial efforts. Similar to the development stage of many blockchain projects and decentralized applications (DApps), there’s a lot of research, work, and investment but very few commercially-viable and production-ready solutions, along with an underlying technology immaturity that hampers implementation.
Financial services appears the closest to production-ready implementation, with examples including the Australian Securities Exchange and the Vanguard Group announcing the intention to implement blockchain in 2018 after successful research and pilots.
Companies around the world are curious about whether blockchain technology can be used to enable new capabilities. Blockchain could help them reduce costs and improve certain processes, advance product and customer data tracking and security, increase product safety, and reduce fraud and counterfeiting.
Together with advancements in sensors and networking, artificial intelligence, and industrial infrastructure, blockchain technology can potentially propel companies into the “Industry 4.0” paradigm of connected and interoperable machines, information transparency, connected supply chains, and more.
Blockchain Activity by Industry
The list below represents some of the public leaders in enterprise blockchain R&D, investment, and innovation.
For financial services, blockchain activity began a few years ago and has been advancing through closely managed PoCs, pilots, and tests. Santander, RBC, JP Morgan, Citibank, BNY Mellon, American Express, Visa, MasterCard, and Goldman Sachs among others are all conducting multiple blockchain-related efforts and have internal working groups or dedicated professionals focusing on blockchain technology.
Due in part to regulation, financial institutions are testing blockchain in a measured and conservative manner. As CoinDesk author Noelle Acheson astutely wrote in October 2017, when the PoCs and pilots in financial services combine, we see abundant R&D that points to pervasive adoption in the future.
Financial institutions have gravitated to blockchain consortia as they pursue R&D. Many banks are in the R3CEV (or R3) consortium, which is dedicated to banking. Many are also in the Hyperledger consortium and the Ethereum Enterprise Alliance (EEA), among others.
JPMorgan, a member the EEA and Hyperledger consortia, has an internal blockchain team along with its own blockchain infrastructure called Quorum. Quorum is based on the Ethereum blockchain and is specifically designed for financial services transactions. The company continues to invest in blockchain, integrating advanced cryptography into Quorum from its partnership with Zcash and launching an inter-bank payment platform called the Interbank Information Network. Both announcements were made in October, 2017.
The Royal Bank of Canada (RBC) has been trialing blockchain in cross-border fund transfers with “Project Jasper,” which includes R3 and Deloitte Canada and which has informed the Monetary Authority of Singapore’s “Project Ubin” of a parallel purpose. They have also conducted trials with prominent blockchain firm Ripple since 2016 or earlier. Ripple is a prominent blockchain company aiming to be a sort of “Swift 2.0” that facilitates international payments for financial institutions.
Goldman Sachs is cautiously developing its strategy. Little is confirmed or known publicly. The firm has an internal working group focused on blockchain and has invested in Digital Asset Holdings, a company that itself invests in distributed ledger technology companies that support financial institutions.
In April 2017, American Express applied for a patent for a new customer rewards program that uses blockchain for record-keeping and cryptocurrency for reward points. In November, it announced using Ripple to help corporate clients send funds from U.S. banks to U.K. Santander branches.
In November 2017, Visa unveiled a pilot of its blockchain-based business-to-business payments service called “B2B Connect.” The platform was first announced in 2016 and is developed in partnership with Chain, an enterprise-focused blockchain infrastructure platform.
MasterCard applied for a patent in May 2016 for faster blockchain-based payments processing for merchants. In March 2017, it applied for a patent for the blockchain-based storage of payment histories between vendors and customers.
As companies across industries apply for more patents, they will likely end up restricting R&D and product development in upcoming years, not to mention oppose the blockchain community’s open-source ethos.
Auto manufacturers recognize that the nature of mobility is changing in light of trends including ride sharing, autonomous vehicles (AVs), electrification, and other technological developments. Several are considering blockchain and other technologies to respond to and participate in the reinvention of mobility.
Volkswagen Financial Services and Renault led PoCs in 2017 testing vehicle telematics tracking. In this use case, a vehicle’s mileage data, engine usage history, repair and maintenance history, and other data can be captured on the blockchain so that manufacturers, dealers, buyers, insurance companies, and other players know a vehicle’s history and activity with accuracy. It is a good use case, as an estimated one-third of used car sales in Germany have manipulated odometers.
Also in 2017, the Toyota Research Institute led a PoC for a blockchain-based decentralized exchange for the purchase and sale of autonomous vehicle driving data. In this use case, automakers purchase driving data from car owners to use in their autonomous vehicle machine learning algorithms, and car owners in turn use the proceeds to pay for vehicle-related expenses, offsetting costs of car ownership.
Toyota Research Institute also led a PoC for a blockchain-powered car sharing platform supported by Oaken Innovations, GEM, and Commuterz.
Daimler is perhaps the most publicly invested company in blockchain R&D. It is funding research in part with a 100 million euro 1-year corporate bond that it issued in June 2017. It is also testing blockchain for bond issuance; the bond’s entire process from issuance to principal repayment operates on blockchain technology. Daimler is part of the Hyperledger consortium and also acquired a European startup in January 2017 called PayCash that supports bitcoin payments.
In Spring 2017, Airbus, part of the Hyperledger consortium, conducted a PoC with Blockchain at Berkeley for jet plane parts tracking. Later that year, KLM began working with a consultancy in Amsterdam called Kryha to develop blockchain-based prototypes.
Furthermore, Lufthansa is testing a blockchain-based travel app for users with Winding Tree, and Air France is considering distributed ledger technology for its supply chain and to track workflows within aircraft maintenance systems.
For some of these projects, there’s a long way until production readiness. At Air France, their practice of using paper-based records and processes is hampering the effort to digitize the supply chain and aviation data on a blockchain (No kidding).
Shipping, Telecom, and IoT
Danish shipping giant Maersk’s trial of blockchain to track the movement of shipping cargo and freight was one of the first major enterprise test announcements. Its first live trial completed in March 2017, and it has since continued to pursue innovating with blockchain technology, including exploring its use in maritime insurance.
The telecom industry is participating in blockchain technology as a way to address margin pressures and steep competition, as well as to participate in new distributed service models and the “Internet of Things” paradigm. Ahead of peers, AT&T filed a patent for vehicle digital currency payments for connected cars in October 2015.
In February 2017, Comcast filed a patent related to storing user data on distributed databases. In November 2017, British Telecom won a patent related to cybersecurity measures to protect blockchain networks.
Also in the past year, Sprint joined with SoftBank and Taiwan-based Far EasTone Telecommunications Company to try to form a consortium to “cooperate in jointly developing blockchain technology for telecom carriers.”
In parallel to internal R&D, several telecoms have made strategic investments in blockchain technology firms. Orange participated in Chain’s 2015 series C investment round. Verizon Ventures was joined by Intel Capital, SamsungNext Ventures, and JetBlue Technology Ventures in the series A fundraising round for Filament, a blockchain startup developing a secure communications platform for devices operating in distributed environments.
More recently, Cisco has announced that it is seeking to play a role in verifying the identity, safety, and trustworthiness of connected devices operating with blockchains. It also filed a patent for this purpose.
The new IoT paradigm may see blockchains serve as a transaction and communication layer between devices. In this system, device security will be essential. Cisco is part of the Hyperledger consortium and the Trusted IoT Alliance alongside Bosch, which has multiple blockchain-related projects and can play an important role in developing specialized device sensors and connectors.
The retail industry appears most focused on supply chain use cases related to blockchain technology. Famously, Walmart is trialing the use of blockchain to track the movement and origins of pork in China.
Also in Asia, Alibaba announced in late 2017 that it has been quietly developing an in-house private blockchain network for the past two years to track product authenticity in the supply chain and reduce counterfeiting. Geoff Jiang, Head of Ant Financial’s Innovation Lab stated that with blockchain, “we know where the product comes from, its source, and which retailer it’s coming from.”
In December 2017, De Beers announced investments in a blockchain-based diamond tracking platform that it hopes will augment supply chain transparency and diamond traceability to avoid conflict diamonds.
De Beers CEO Bruce Cleaver stated, “This diamond traceability platform is underpinned by blockchain technology, which allows for a highly secure digital register that creates a tamper-proof and permanent record of interactions — in this instance, a diamond’s path through the value chain.”
Blockchain Challenges and Considerations for Enterprises
Companies face several challenges and questions as they consider adopting blockchain technology. Most notably, many fundamental blockchain technologies are unready and untested for large-scale commercial implementation. In addition to transaction security and scalability, companies also face challenges related to attaining internal blockchain knowledge and developer talent.
Assuming technical challenges are overcome, companies must evaluate crucial trade-offs: While blockchain and decentralized technologies enable data robustness and integrity and allow for the disintermediation of middlemen and third parties from databases and processes, they have slower transaction processing times and less data privacy than centralized databases and systems.
Next, companies must re-orient towards working with competitors, suppliers, and customers along the value chain. Many blockchain use cases involve connecting and sharing databases and processes with these parties. In some cases, they may need to present the value proposition and persuade these parties to work together to use the new technology.
Companies also manage regulatory and reputational risk: Financial services and healthcare must approach blockchain adoption carefully due to strict regulatory rules, and conservative companies across industries are hesitant to be negatively associated with the past year’s ICO and cryptocurrency craze.
Moreover, in many enterprise use cases, there’s a critical and currently unresolved assumption of trust and veracity in the data inputs and the initial connections from the physical to the digital world. For instance, in supply chains, we assume that the initial producer of a handbag or jalapeño accurately creates and represents the product’s digital identity on the blockchain. In vehicle telematics tracking, we assume that the data coming from a vehicle’s odometer is accurate when it connects to the sensor that allows it to be tracked on the blockchain. If the data is not correct, then the blockchain would represent erroneous information and its ability to insert data integrity and “trust” would into a system are meaningless.
As is the case across the board with blockchain technologies, there’s a hope and expectation for new capabilities alongside very real technical and implementation challenges that come with the technology’s young age and arguably premature state. There is a chance that the blockchain community does not resolve these challenges and the technology does not live up to its great expectations.
Blockchain Implementation Decisions for Enterprises
If the company has decided to pursue and potentially adopt blockchain technology, it must answer important strategic questions:
- What levels of speed, scalability, security, and privacy do we need?
- Should we use private “permissioned” blockchains or public ones?
- Should we employ an enterprise-grade blockchain platform?
- Should we join a consortium?
Most companies today choose to implement blockchain solutions in private networks, which have permissioned rather than public access to the blockchain network. Private networks alleviate some concerns around data and transaction privacy.
However, private networks also entail a trade-off: they assume a greater level of trust among the participants, and the underlying blockchain’s consensus algorithm typically has weaker ability to prevent malicious or fraudulent network transactions (major public blockchains are typically “Byzantine fault tolerant,” a feature of distributed systems that provides defense against up to 33% untrustworthy participants in the network).
In exchange for security against malicious and fraudulent actions, private networks grant speed and privacy. In some cases, a costly shift to blockchain platforms may not be necessary if the parties are already assuming trust between one another.
Furthermore, many enterprises currently testing blockchain solutions are employing an enterprise-grade development and implementation platform such as Microsoft Azure “Blockchain-as-a-Service,” Hyperledger Fabric, or Chain Core. All three provide support in the industry examples listed above.
Finally, several companies have created and joined blockchain-related consortia. There was a proliferation of consortia in 2017, and they have become integral to today’s R&D ecosystem. A consortium typically involves multiple large companies, software development startups, blockchain-oriented research and educational organizations, and even government agencies.
While some corporate participants in a consortium may be industry competitors, they agree that by working together, they hope to coordinate to set technology and implementation standards, share knowledge and resources, and accelerate the production of high-potential software and solutions. The efficacy of consortia is yet to be determined, and 2018 will test their value.
In the enterprise world, the year 2017 saw a rapid acceleration of blockchain-related investment and activity. Proof-of-concepts continue to be the dominant form of visible R&D, and they are joined by several pilot tests and patent applications across a breadth of industries.
Today, very few companies have developed technologies ready for large-scale production. Companies in financial services appear most poised to introduce blockchain in production in 2018, with continued heavy investment and consortium participation.
In 2018, I expect to see further investment in blockchain education, R&D, strategic investment, and acquisitions as the technology and its use cases become more mainstream and understood by management teams.
I expect to also see continued participation in consortia and perhaps new consortium formation, as companies seek to set standards and leverage one another’s resources and knowledge. The upcoming year will also test whether 2017’s new consortia produce high-value software and solutions. Finally, as the experts leading the field address critical technical and implementation challenges, we will start to see production-level enterprise applications in 2018 and 2019.