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Part of a ZDNET Special Feature: How Blockchain Will Disrupt Business
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Executive's guide: How to implement blockchain technology in your business

The technology behind the cryptocurrency Bitcoin is one of the Internet's most promising developments. Here's how businesses can use it to streamline operations and create new opportunities.
Written by Laura Shin, Contributor

Special feature

Blockchain is one of the most important technologies to emerge in recent years, with many experts believing it will change our world in the next two decades as much as the internet has over the last five.

Although it is early in its development, firms pursuing blockchain technology include IBM, Microsoft, KT, JPMorgan Chase, Nasdaq, Foxconn, Visa, Mastercard, and shipping giant Maersk. 

Research agency Gartner predicts that by 2025, the business value added by blockchain will grow to over $176 billion, surging to over $3.1 trillion by 2030.

Outlier Ventures says that over the first half of 2019, blockchain-based startups raised $822 million from 279 separate venture capital deals, with 159 investments made through seed rounds. Major investors in the blockchain space include Sequoia Capital, Andreessen Horowitz, Digital Currency Group, Pantera Capital, and Boost VC.

The applications for blockchain technology seem endless. While the first obvious ones are financial -- international payments, remittances, complex financial products, and cryptocurrency -- it can also solve problems and create new opportunities in healthcare, defense, supply chain management, luxury goods, government and voting, and other industries.

Read on: 19 useful metrics for measuring blockchain progress

How Blockchain technologies are transforming our societies

In more advanced stages, the technology could give rise to what Gartner calls 'the programmable economy', powered by entirely new business models that eliminate all kinds of middlemen, machine networks in which devices engage in economic activity, and 'smart assets' in which some form of property such as shares in a company can be traded according to programmable or artificial intelligence-based rules rather than the control of a centralized entity. It may also be possible for blockchain to shake-up current financial systems, such as the US' Know Your Customer (KYC) bank vetting scheme. 

Executive summary (TL;DR)

What is blockchain: A blockchain is a single version of the truth made possible by an immutable and secure time-stamped ledger, copies of which are held by multiple parties.

Why it matters: It shifts trust in business from an institution or entity to software and could someday spell the demise of many traditional companies. It also promises to make tradeable many assets that are illiquid today, enable our devices and gadgets to become consumers, and bring trust to many areas of business, eliminating fraud and counterfeiting in the process.

How it works: Cryptography secures the data and new transactions are linked to previous ones, making it near-impossible to change older records without having to change subsequent ones. And because multiple 'nodes' (computers) run the network, one would need to gain control of more than half of them in order to make changes.

Why it's disruptive: At the very least, it promises to make firms' back-end operations more efficient and cheaper, but down the line, it could replace middleman companies altogether.

Business opportunities: New services and products will pop up in areas such as creating and trading assets, tracking provenance, managing supply chains, managing identities, and in providing ancillary services to the software itself.

Main vendors: More than a dozen platform vendors have sprung up, and several dozen consulting and implementation providers assist in adopting blockchain projects.

Career options: The main blockchain specialists include developers and business and technical architects. But roles are also needed in risk management, security, cryptography, business process management, product strategy, and analytics.

What is a blockchain?

A blockchain is a golden record of the truth that creates trust among multiple parties. Specifically, it's a secure, tamper-proof ledger with time-stamped transactions, distributed amongst a number of entities.

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This means a blockchain -- a piece of technology -- can replace an intermediary in situations where a trusted third-party is required. 

So, for instance, while we now need a bank (or several) in order to make a payment to a foreign country, a piece of software -- the program running Bitcoin -- can now send money to someone across the world for us. And the latter can be much cheaper and faster, although transaction fees vary.

Overall, blockchain technology promises greater security and lower costs than traditional databases. Blockchains can also be public or private, either permitting anyone to join a network or allowing only authorized entities to participate. 

Blockchain has become the catch-all phrase for a larger group of technologies called 'distributed ledger technology' or DLT. Technically speaking, it is possible to have a distributed ledger that is not constructed as a blockchain (as described below), however, when people refer to blockchain technology, they are often speaking about DLT.

And if you want to get really technical, "DLT falls short because it assumes information gets distributed when in many cases it doesn't," says Javier Paz, senior analyst at financial services research firm Aite Group. But 'blockchain', 'distributed ledger', or 'DLT' should suffice for all but the most technical discussions.

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Why it matters

"The key differentiator between a database and blockchain is that a database is managed and controlled by someone," says Eric Piscini, principal of financial services technology at Deloitte. "A blockchain doesn't need to be managed by someone, so you don't have to trust someone to run the platform. It's run by everyone at the same time. That's a shift in business models."

Eventually, blockchains could give rise to a number of peer-to-peer networks not run by any centralized parties that enable the creation and transfer of money or other assets. For instance, the technology could be used to create an Airbnb-like network without the company Airbnb. When combined with the Internet of Things (IoT), it could create an Uber-like program without Uber. Such peer-to-peer networks are often referred to as distributed autonomous organizations (DAOs), and someday, they could transform our whole conception of companies.

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How it works

Not every blockchain works the same way. For example, they can differ in their consensus mechanisms, which are the rules by which the technology will update the ledger. But broadly, a blockchain is a ledger on which new transactions are recorded in blocks, with each block identified by a cryptographic hash of that data. 

The same hash will always result from that data, but it is impossible to recreate the data from the hash. Similarly, if even the smallest detail of that transaction data is changed, it will create a wildly different hash, and since the hash of each block is included as a data point in the next block, subsequent blocks would also end up with different hashes. This is what makes the ledger tamper-proof -- or, at least, extremely difficult to manipulate without being detected. 

Finally, security also comes from the fact that multiple computers called nodes store the blockchain, and so to change the ledger, one would need to gain control of at least 50 percent of the computing power in order to change the record -- a difficult feat especially for a public blockchain such as the main Bitcoin network; 51% percent attacks have been recorded on some crytocurrency blockchains, but they are neither quiet nor covert.

Additional resources

Why it's disruptive

A common saying is that blockchain technology will do what the Internet did to media -- disrupt -- but to sectors such as financial services, law, and other industries offering trust as a service.

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"The industry has lived and breathed off the back of intermediation," says Gartner analyst David Furlonger. Noting that banks typically control financial activity and governments usually control the economic assets we use, he adds, "If you think about the way authentication and identification is done, the way you onboard customers, the way you share records, all of this is done through siloed, decades-old channels and processes." 

"And here you have a technology that basically says you no longer need a middleman, you have one golden copy of a record that no one can change ... anyone can join any time because it's open source ... it's kind of free, anyone can create any asset and distribute it to anyone else on the planet," Furlonger continues. "You're basically saying, we're going to change the way the economic models that have grown up for the last several centuries operate. As a result, we're going to change the way society operates as well."

Furlonger believes the outcome will be what Gartner calls 'the programmable economy', which it defines as a global market powered by algorithmic businesses and DAOs running on blockchain-based networks whose assets engage in economic activity by rules coded in software or artificial intelligence. 

The two most commonly used public networks so far are Bitcoin and Ethereum, although Ripple is also gaining traction due to a recent remittance deal to facilitate payments between Japan and Vietnam, as well as low transaction fees and high speeds when compared to Bitcoin. 

To start, the technology will make the back-end operations of many companies more efficient because firms that currently work with each other, and even different departments within one organization, often maintain their own ledgers, duplicating work. "At least we will see it impacting the back and middle office, eradicating the problems and cost associated with sustaining multiple versions of the truth," Paz says.

As services at certain companies become more efficient and cheaper, market share among incumbents is likely to change. And because the technology is open source "You can build that platform for a fraction of what it would cost you with traditional technologies," says Piscini. That gives both startups as well as the software itself an opening. For instance, people could use the Bitcoin cryptocurrency network, which is not run by any one company, to make payments cheaply, quickly, and efficiently. 

"If you just enable transactions for others, you're in big trouble," Piscini says, "because the blockchain can replace you as an entity without the need for a legal entity to run it."

Additional resources

Business opportunities

According to Deloitte's 2019 Global Blockchain Survey, 53 percent of respondents said that blockchain technology has become a critical priority for their organizations this year -- a 10 percent increase over 2018 -- and 83 percent of those surveyed believe there are compelling use cases for the technology in the enterprise.  

Although some executives might fear software replacing their role or their company's, even email hasn't killed snail mail. The technology does promise to change existing market share, but Piscini says companies can avoid becoming obsolete by seizing upon new opportunities. 

"If companies provide incremental services, if they provide you the ability to dispute transactions, to do some analytics on top of that platform -- incremental value that you don't have today. That's how they're going to survive," the executive says. 

In fact, blockchain technology will enable companies to offer services that previously were impossible without it.

Photos: 10 innovative blockchain startups poised to revolutionize business

Blockchain technology makes possible new offerings in industries as diverse as financial services, healthcare, supply chain, oil and gas, retail, music, advertising, publishing, media, energy, government, and many others. 

In finance alone, it can be used for making international payments, trading stocks, bonds, and commodities, and providing an audit trail for regulators. It can create new forms of assets and make it possible to trade existing illiquid ones, such as mobile minutes, energy credits and frequent flyer miles.

"Blockchains stock information in an immutable way which significantly increases the reliability and the traceability of information," says Nathalie Janson, Associate Professor of Economics and Economist at the NEOMA Business School. "Therefore certification activities as auditing activities may look redundant in the future. Moreover, the validation process of the blocks can be done in a decentralized manner without the need of a trusted third-party. These new technologies clearly challenge the centralized design of the banking and the financial system. We are just at the beginning of a 'big bang'."

Bockchain can be used to track provenance, stamping out fraud and counterfeiting in areas such as luxury goods, fine art, pharmaceuticals, food, and government documents. By improving traceability and transparency, the supply chain may also benefit.

It can also enable people to manage their identity and the privacy of their data instead of having to rely on centralized entities such as Google, Facebook, or Twitter. 

Smart contracts, too, are of note. A smart contract is the concept of self-executing contracts -- made possible through blockchain -- that eliminates the need for trusted third-parties as overseers, potentially streamlining legal and real-estate contracts, as well as reducing transaction fees. The smart contract market is expected to reach $300 million by 2023.

"Blockchain enables trust due to a shared view of secure data, hence, improving coordination between partners," says Marco Limena, CEO of Tomia. "This, in turn, enables the elimination of third parties, resulting in significant cost savings, providing incentives of greater profit margins for telecoms companies that upgrade their digital functions to the blockchain. The 'problem-solving' nature of blockchain is what makes it lucrative."

Know Your Customer (KYC) is another example of how the blockchain could benefit the financial industry. Fraud and identity theft are a constant headache for both financial institutions and consumers, but by creating ID digital ledgers, it may be possible to bypass the lengthy KYC protocols currently in place, of which there is no common standard. 

Blockchain also makes it possible for musicians, writers, and other artists to embed royalty payments into their MP3s, ebooks, and other creations to pay themselves every time their work is bought or resold. It can be used by publishers to run publications funded not by ads but by micropayments issued by readers' browsers. 

It can show an individual voter that their vote was counted correctly and the entire electorate that no votes were fraudulent or counted more than once. And those are just some examples.

Blockchain is also being considered as a way to assist businesses in maintaining data security and compliance, such as in the case of the EU's General Data Protection Regulation (GDPR).

Additional resources

Vendors

A host of platform vendors to enterprise have already cropped up. Although the space has more than a dozen players, the most active groups (two are not companies), in alphabetical order, are:

  1. Chain, which, together with Nasdaq, created the first private blockchain in production (although on a small scale) -- Nasdaq Linq, which is used in managing shares in private companies. It also has partnerships with Visa, Citi, and Capital One.
  2. Ethereum, a P2P network that's public like bitcoin but focused on smart contracts, not payments, and that has an enterprise initiative, the Enterprise Ethereum Alliance (EEA).
  3. Hyperledger, the open-source effort run by the Linux Foundation and closely affiliated with IBM which counts companies as diverse as Airbus, American Express, Daimler, and Intel as members.
  4. R3, a consortium of financial institutions whose distributed ledger offering, Corda, is not structured as a blockchain, meaning that transaction data is not published to the ledger of every participant in the network. Instead, transactions are published only on the ledgers of the relevant parties.

Others include Axoni, Digital Asset Holdings, Monax, Ripple, SETL, Symbiont, and tZERO.

Businesses helping firms implement blockchain solutions include Accenture, Capgemini, Chainsmiths, Deloitte, Ernst and Young, IBM Global Services, Infosys, KMPG, PwC, Polaris, Tata Consultancy Services, Wipro, and others. IBM and Microsoft are leaders in cloud blockchain services.

Blockchain projects in development:

  • Enterprise Ethereum Alliance: Microsoft, Intel, Accenture, Credit Suisse, UBS, JP Morgan Chase, Bank of New York Mellon, and other technology vendors and financial institutions have joined the alliance, which aims to develop the blockchain and smart contracts for use in enterprise applications.
  • Mastercard's blockchain: Mastercard has opened up its blockchain APIs to developers for the purpose of encouraging B2B cross-border payment technologies for the financial industry. 
  • E-voting: Estonia, in partnership with Nasdaq, has piloted blockchain as a means for shareholders to vote online in company meetings. The country's e-residency scheme is connected to the test, in which shareholder identities are verified through the blockchain. 
  • Political voting: Proposals have been brought forward for ways to harness the blockchain in government voting schemes and elections. 
  • Smartphones with blockchain tech: Sirin Labs is developing handsets with in-built cryptocurrency wallets and token conversion services.
  • Visa B2B Connect: This year, in partnership with IBM, Visa announced B2B Connect, a blockchain-based cross-border payments network based on the open source Hyperledger Fabric framework.
  • Microsoft ION: Microsoft's Identity Overlay Network (ION) is an early-stage distributed identity system, based on blockchain, has been designed to shake-up the way we identify ourselves and sign in to online services. The Redmond giant hopes to increase the scale of ION from tens of thousands of operations per second to millions. 
  • IBM: IBM is investing heavily into the development of blockchain technologies and has not only launched a blockchain-as-a-service enterprise offering, but has also created a 'trust your supplier' blockchain system, a financial services platform designed to allow financial institutions to share services across the blockchain, and has a pilot in the works with Walmart to test blockchain-based tracking of pharmaceuticals. 
  • Managed enterprise services: Amazon offers the enterprise a managed blockchain service based on Hyperledger Fabric, with plans to introduce the service on the Ethereum network. Oracle also offers a similar solution to corporate customers. 

Additional Resources

Challenges to implementation

Despite the possibility of blockchain technologies influencing future business models, this does not mean there are no barriers to adoption.

Deloitte surveys suggest that implementation and regulatory issues are the most problematic areas when it comes to harnessing blockchain technology. In addition, enterprise players are concerned with potential security threats, a lack of in-house expertise, the unproven nature of blockchain, and an uncertain ROI are problematic. 

Career options

Numerous executives have noted a talent shortage, and because financial services firms are hiring in the space, blockchain developers command high salaries, with an average of between $81,000 and $144,00, according to Glassdoor. Vacancies for blockchain and crypto specialists across the United States continue to increase.

The roles needed in the space include blockchain developers, technology and business architects, and specialties should include risk management, security, cryptography, business process management, product strategy, and analytics. Technology architects construct the blockchain so that it's appropriate for business needs, secure, and does what it intends to do. 

As the technology develops further and smart contracts become a reality, staff will also be needed to combine IoT and artificial intelligence with blockchain. Less blockchain-focused roles are also necessary to ensure the solution can be integrated with, say, accounting or human resources.

"People underestimate the complexity of replacing a transaction platform with a blockchain solution," Piscini says. "It may be working in the lab, but when you work from the lab into production, you have a lot of challenges."

Despite its infancy, businesses remain open-minded about how the blockchain may become a driving force in future business transformation. Speaking to ZDNet, Richard Gendal Brown, Chief Technology Officer at blockchain firm R3 said that one of the main lures for implementation is assurance, in which "what you see is what I see" when companies wish to do business. 

Brown commented:

"Building on principles introduced by public blockchains, but applying them to real-world business problems, enterprise blockchain is about identifying and eliminating all the places where disagreements, ambiguity, and doubt can enter a process, so allowing it to be executed seamlessly -- across the boundaries of firms and individuals.

While this may seem trivial, it can radically transform processes that financial institutions rely on, from payments to trade finance, syndicated lending, identity management and much more.

The potential for enterprise blockchain, therefore, is that the revolution shaped by the IT industry in the optimization of the operations of individual firms can now be achieved for entire markets and the business models upon which they are built."

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