Can blockchain claim victory in business model innovation?

The accelerated expansion of digital capability and identity by many organisations and their associated ecosystem partners as a result of the Covid-19 crisis has been an unquestionable step-response to protect their resiliency and operational efficiency.

As recovery starts to re-shape the business landscape, we at the IKE Institute have seen a steady stream of queries about what blockchain technology is, what type of issues it can solve for an organisation and what could be the expected return on investment from deploying it.

As with many new and emerging technologies, finding a starter home for their applications relies on the willingness of organisations to experiment and adopt such technologies to address their challenges. In the case of blockchain technology, which was initially outlined in 1991 by two researchers, Stuart Haber and W. Scott Stornetta, who wanted to implement a system where document timestamps cannot be tampered with, it did not locate a natural home until the launch of bitcoin in 2009 – a form of digital money and payment network known as cryptocurrency.

In recent years, traction in blockchain technology applications can be evidenced by its reference within many governmental policies, and in the level of investments made by public and private sector organisations.

At the heart of it, blockchain is a distributed, online ledger recording a history of digital transactions, without the need for a regulating authority. Distributed digital ledger technology (DLT) uses digital assets as foundational building blocks, and it can record information and transactions between multiple parties efficiently and in a verifiable and permanent way.

The ‘block’ part of the blockchain is a file, which contains a group of transactions. Each block contains three main pieces of information. Firstly, a block contains the data about the transaction itself including the value of the transaction, the date it took place and the transaction’s participants. Secondly, a block contains a unique code consisting of a series of letters and numbers (called a hash code) which is used to identify the block. And thirdly, a block contains the hash code of the immediately previous block.

The ‘chain’ part refers to the fact that each block is strung together in a chronological and linear configuration. Once a block has been added to a chain, it cannot be removed or modified. This ensures greater security, as the permanence of the block precludes hackers from tampering with it. Any attempt to change the contents in a block results in a new hash code being created, and thus, the chain breaks. A blockchain is unchangeable for this reason. (For a more detailed explanation, we recommend this article.)

Blockchain offers peer-to-peer interactions within a network where peers (referred to as nodes)can communicate and transact with each other, without the need for a centralised system. To make the network self-sustaining, each node has to have a copy of the ledger.

There is also a set of predetermined rules as agreed by consensus by all involved. These rules are essentially an algorithm that takes care of validating and storing transactions in blocks that are part of the blockchain.

Blockchain technologies are categorised as permissioned, (i.e. only authorised users can access the blockchain applications in private, consortium, or cloud-based settings), or permissionless (i.e. publicly accessible for all users via the internet). Usually, all the participants on the network can read the data on the blockchain, but only a few authorised and trusted users can write the data in the blocks to form the blockchain.

Some of the touted generic benefits of blockchain include better transparency, enhanced security, true traceability, reduced cos; and improved speed and efficiency.

Beyond its initial application in cryptocurrency, blockchain, according to many leading blockchain providers such as Accenture, IBM, Infosys, NTT Data, TCS and Wipro, is now experiencing better adoption across industries with companies undertaking projects that move from the stages of proof-of-concept to deployment through a variety of blockchain-based applications. From making transactions online easier and more secure, through improvements in logistics enabling transportation of goods to be more streamlined, to that of ensuring the food we eat is more traceable and safer, blockchain is changing the world around us.

In healthcare, where the challenge of managing large and very important amounts of medical data is ever present, the application of blockchain offers huge potential. A case in point has been the sharing of data for developing clinical trials for developing Covid-19 vaccines across the world.

According to McKinsey, distinct category use cases of blockchain cover record-keeping of static information such as identity and smart contracts, and enable the use of such data to optimise recalls of vehicles with faulty parts and components, for instance. Blockchain in transactional use cases that employ registries of tradable information such as drug supply chains and insurance claims have demonstrated the true value of this secure technology.

With the proliferation of the Internet of Things related to blockchain, the global market is expected to grow with a CAGR of 40% between 2020 and 2025, according to ResearchAndMarkets.com. In addition, research by Gartner in 2019 highlighted a majority (75%) of organisations that have adopted IoT technology either have already integrated blockchain, or are planning on doing so during 2020 and beyond.

Equally, with the rise of platforms as a service (PaaS), the need to extend data sharing between platforms and functions, as well as across public and private cloud vendors, is becoming a more mandated, end-to-end requirement to assure transactions. Thus, data authenticity using blockchain technology is being adopted to ensure trusted security, and support opportunities to enhance productivity, generate analytics and enable new discoveries to be found.

More recently, the combining of blockchain technology with artificial intelligence (AI) – where a machine can be allowed to have cognitive functions to learn, infer and adapt based on the data it collects – is promising a new set of value propositions, as described in this report. Integrating distributed ledger technology with AI will enable data to be decentralised in processes that govern blockchain transactions, such as analytics and decision-making, leading to a trusted, digitally-signed and secure shared-data environment. This combined AI-blockchain platform could obviate the need for a trusted third party or intermediary to be used, thus offering much faster, efficient and secure transactions.

While blockchain technology adoption is gaining traction by many business leaders, organisations and policymakers, there are still a number of challenges affecting the rate of take up. Chiefly, amongst those hurdles are:

• Scalability of processing transactions

• Interoperability protocols to allow interaction of peer-to-peer networks as many of the blockchains work currently in silos

• Energy consumption with respect to providing processing power to solve complex computational problems to ensure security and verification

• Talent, as there is presently an acute shortage of blockchain experts and developers

• International standards or regulations to support and enable interoperability of data that’s collected from different devices or platforms across the world.

For large-scale implementations of blockchain, cost is a definite inhibitor; particularly in sectors such as healthcare, where issues of standardising the formatting of data to facilitate meaningful interoperability between systems could potentially result in blockchain implementation being slow and expensive.

Devising a sound governance model managing a blockchain platform amongst different participants and stakeholders also remains to be a tedious task. Questions as to the type of blockchain being deployed (e.g., Hyperledger or Ethereum), who will administer and troubleshoot the blockchain, where the noes of the blockchain will be located, and who will write the smart contracts, arbitration and settlement of disputes all need to be addressed, as these are serious issues that will hinder the effective working of blockchain platforms.

There is no doubt that blockchain technology introduces a new design paradigm for next-generation transaction-based applications. Currently, blockchain’s cry of victory in business model innovation remains to be a premature claim.

However, for those large organisations that transact or use significant big data applications, where a distributed and shared public or private ledger is required with a collective consensus mechanism, blockchain is becoming a strong contender to support business model innovation, as it is bringing new ways of working that assure trust, transparency, and accountability. Its growth remains to be subject to feasibility factors that focus on the pragmatic features required to secure investment returns and thus, this focus could limit potential ROI on proof-of-concept designs and full roll-out of blockchain technology platforms.

Unquestionably, decentralised distributed AI will enable a greater adoption and proliferation of blockchain. It is interesting to note though, that for AI to operate at optimum levels, processing and memory need to be lightning fast. The emergence of quantum computing will offer such a capability.

Of course, the irony is that once we do have memory and processing capability delivered at low energy consumption rates, quantum encryption (qubit) will completely negate the use of blockchain, as it offers the same benefit potential. As mainstream quantum computing is still far off due to huge energy requirements, blockchain remains, at least for now, the panacea for fast, secure and transparent transactional applications.