ARTICLE | March 12, 2019 | 6 min read
Distributed ledgers can improve processes where many parties share sensitive data
By Will Callan
Blockchain, the technology behind Bitcoin and other cryptocurrencies, is becoming more than a buzzword in the enterprise. Already, 39% of companies in a 2018 global survey from Deloitte said they plan to invest in the technology in the coming year, while 43% see it as a top strategic priority.
The draw for business leaders is strong: Blockchain has the potential to streamline complex business processes, verify the quality and provenance of goods, and ease the paperwork burden of regulatory compliance.
“Blockchain will give you this common infrastructure that both sides will see,” says Bilgin Ibryam, a software architect for Red Hat, the open source technology company.
[Read our report on EHR systems and the need to protect sensitive data.]
At its simplest, a blockchain is a distributed electronic ledger, like a shared spreadsheet, in which transactions of various kinds—shipping manifests, real estate transfers, and money exchanges, among many others—can be logged and authenticated. Blockchains are powerful because everyone on the chain is notified when entries are added or changed. Because the information is tamper‑proof, blockchains make it possible for multiple parties to have confidence in the accuracy of the data without third‑party certification.
While still in its early stages, blockchain technology is being tested in a range of industries. IBM and Maersk, the global shipping giant, recently launched a blockchain‑based trading platform to streamline the paper‑heavy process of sharing documents and data among global logistics partners.
Though other shipping companies have criticized the project because it doesn’t establish an industry standard, Maersk and IBM say that 94 organizations, including port operators, shipping lines, and customs officials, have signed on to the platform, called TradeLens.
Many blockchain deployments are still in the proof‑of‑concept stage, and the technology still faces big obstacles. It’s difficult to integrate with legacy systems, and there’s a shortage of engineers with the skills to do so. Moreover, blockchain’s effectiveness remains unproven.
Still, supporters say that blockchain shows potential to improve the security and efficiency of complex business processes. Here are a few ways that blockchain is showing promise.
A recent PwC report notes that nearly 75% of companies lack complete visibility into their increasingly complex global supply chains. This limits their ability to track shipments, secure payments, and comply with regulations.
In the food industry, this partial blindness can mean that restaurants, grocers, and wholesalers often aren’t sure that the products they sell are what they’re purported to be. What’s more, it’s difficult to quickly track the source of contaminated or unsafe foodstuffs. Blockchain could help reduce both problems.
Food fraud—diluted orange juice, bogus olive oil, or mislabeled meat—is estimated to cost as much as $40 billion annually. A blockchain‑based tracking system using RFID tags or other markers could automatically record a product’s passage from the farm to the grocer in a ledger that’s visible to everyone in the chain and that automatically notifies all the stakeholders if the product has been substituted or altered. In traditional, paper‑based systems, by contrast, changes to the ledger could be made covertly and the fraud left undetected.
“If there’s anything missing, you’ve instantly lost your paper trail,” says James Moar, a senior analyst at Juniper Research in Basingstoke, England.
“Blockchain provides an unalterable online record of where things have been and where they will be.”
Food safety is another promising blockchain application. Worldwide, contaminated food causes around 420,000 deaths a year, estimates the World Health Organization. Blockchain would give a grocery chain a secure and reliable way to track tainted foodstuffs back to the source.
In the case of an E. coli outbreak, blockchain could provide a reliable record of a product’s journey from field to store, making it possible to pinpoint the source of the contamination. “You can say with certainty that that’s the source and shut it down,” says Moar.
During a two‑year pilot project, Walmart used blockchain to verify its produce supply chain. In one test, Walmart was able to trace a package of sliced mangoes to its farm of origin in Mexico in seconds, compared with a week using traditional methods.
Walmart did not respond to requests for comment, but it recently published a case study claiming that blockchain allows it to trace the origin of more than 25 food products. Walmart will soon require all of its leafy‑green suppliers to join the system.
“Everything is still relatively bespoke at this stage,” says Moar. “But that is going to be one of the cool use cases, because it can unify supply chains where they haven’t been before.”
Blockchain’s secured, decentralized ledgers can in many cases eliminate the need for trusted intermediaries, such as bankers in finance or title companies in real estate. This has led to the emergence of smart contracts, software that can automatically codify agreements and execute them when certain conditions are met—for example, unlocking a blockchain‑stored payment once a buyer receives the item.
A handful of startups are using this technology to streamline a range of transactions, from selling used cars on Craigslist to automating contracts for derivatives trading.
One project, OpenLaw, provides smart contracts for individuals and small businesses in partnership with Rocket Lawyer, a San Francisco company that sells low‑cost legal documents and advice. For example, a tenant and landlord might draft a rental agreement through Rocket Lawyer and enforce it through smart contracts that automatically handle payments and settle disputes.
“Our goal is to help people build commercial relationships faster and more efficiently,” says Aaron Wright, one of OpenLaw’s co‑founders and a professor at Cardozo School of Law. The product, Rocket Wallet, is in private beta.
OpenLaw has also tested a tool that uses smart contracts to automate payroll operations. With the tool, companies can review hours worked and pay employees at any interval (by the minute, if they want). It can incorporate federal tax rules, pay income taxes in real time, and maintain an auditable log.
“With an audit trail of all your payments, there’s no question that you paid, and if there is a question, [the IRS] can look,” says Wright.