August 13, 2018 –
For our July 2018 Mayfield CIO Insights series, we invited Blockchain at Berkeley’s Wesley Graham to talk about how blockchain is revolutionizing the enterprise.
The key takeaways:
– Blockchain is all about creating distributed, tamper-resistant databases
– Cryptocurrency represents only a tiny percentage of blockchain applications
– Not everyone needs a blockchain, but enterprise use cases abound
– More than half of the Fortune 500 are currently running blockchain pilots
– Issues with scalability, privacy, and interoperability remain
– The time to get started with blockchain experiments is now.
For nearly 50 years Mayfield has kept its fingers on the pulse of paradigm-shifting technologies. Over that time, we’ve seen few innovations as promising or provocative as the emergence of blockchain for the enterprise.
Blockchain is about a lot more than cryptocurrency. The use of immutable, distributed ledgers has the potential to radically transform nearly every industry, from retail and real estate to energy, financial services, transportation, and more.
Today more than half of the Fortune 500 is running blockchain experiments. Walmart is using blockchain in China to trace pork back to the farms where it was produced. Alibaba is using it to reduce counterfeit goods in the supply chain. JP Morgan has invested in its own hybrid public-private blockchain to securely manage financial transactions. AT&T is testing whether the technology can help protect its customers from fraud and data theft.
Who needs blockchain?
Still, key questions remain. Does your business really need a blockchain? How should you go about creating a proof of concept for it? To address these issues, we invited Wesley Grahamto join us on our July 2018 CIO Insights call.
As Consulting Officer for Blockchain at Berkeley, Wesley works with Fortune 500 companies on how they can implement secure ledger technology in their enterprises. When he’s not consulting and presenting at global tech forums, he’s a student at UC Berkeley studying Industrial Engineering and Operations Research.
There are five fundamental questions you need to answer to determine whether blockchain makes sense for your organization, Graham says.
- Do you need a secure database to transact business?
- Will multiple parties be updating this database?
- Do these parties need to trust each other?
- Do you require trusted third parties to help transact your business?
- Are these transactions dependent upon each other?
If the answer to any of these questions is no, you don’t need blockchain. A secure, centrally managed database should be sufficient for your needs.
Odds are, though, your business relies on some kind of internal system that stores information about customers, suppliers, products, and so on – in other words, a ledger or database. This database is managed by one or more administrators, whom you implicitly trust to correctly execute processes and securely maintain that data. That data may also need to be accessed by third parties such as business partners or payment services.
So a bank is really a ledger for account balances that tracks where our money is. A supply chain is a ledger that traces the location of goods as they move from producer to purchaser. A land registry system is a ledger for property ownership.
But traditional ledgers are also full of errors and redundancies, difficult to manage at scale, often siloed, and subject to mismanagement.
Blockchain allows you to take these centralized databases and craft peer-to-peer networks around them, so multiple parties can input data and share information in a secure and immutable way. Once a record is updated in the blockchain, it is time-stamped, ordered, and auditable so that no one can easily tamper with it. The information is encrypted, distributed among all parties, and constantly synchronized, so that no single entity can steal or destroy it.
Blockchains allow enterprises to integrate siloed databases under a common API, so they can share data seamlessly and enjoy the benefit of network effects. They enable databases to function despite the presence of malicious actors, assuring enterprises that the data is always authentic. And they allow these ledgers to be more transparent, allowing decision makers to easily pinpoint information and eliminate redundancies.
In short, blockchain makes that database trustless, decentralized, and tamper-resistant. This has enormous implications for everything from fraud prevention to supply chain safety and access management.
The proof is in the concept
In today’s enterprise space, large-scale blockchain applications are still very rare, in part because businesses like to maintain tight control over their internal processes and information. In addition, unresolved issues around blockchain scalability, privacy, and interoperability remain.
Still, nearly 300 major enterprises, spanning virtually every industry, are currently running blockchain pilots and proof of concepts. The early results are encouraging.
For example, it used to take Walmart more than six days to trace a cut of pork back to its origin, because of the large numbers of suppliers in its network. After piloting a blockchain solution, Walmart was able to trace a cut of meat in under three seconds. This has huge implications for compliance and public safety.
Imagine that a piece of pork was found to cause food poisoning. If it takes six days to pinpoint where it came from, that means shutting down Walmart’s pork supply chain for nearly a week. Many people will get sick and Walmart will lose millions of dollars. Much of blockchain’s value lies in taking systems that may not be expensive now but can cost you a lot if they fail, and making them more auditable, trusted, and integrated.
Fundamentally, enterprises need to be thinking hard about how they can use blockchain to streamline their accounting, supply chain, and ERP systems. They should be looking at any system built around an underlying database and deciding whether using blockchain can solve some of their problems.
Q&A with Wesley Graham
Our panel of CIOs had some intriguing questions for Wesley on piracy, scalability, and how to get started. Here’s some of that dialogue.
How can blockchain be used to combat piracy? Can it reduce the time and energy audit and legal departments expend on their anti-piracy efforts?
Blockchains are very much in demand by enterprises seeking to protect intellectual property, because they can track exactly where and when information is being shared. But supply chain scenarios are a little different. With physical goods like bicycles, for example, blockchain is great at pinpointing where each bike part is, but it’s still heavily reliant on the people entering data into the blockchain. Until those endpoints can be secured, it’s not possible to ensure a trustless system; you’ll still need employees and suppliers to update information correctly.
How do you protect yourself against bad actors on the blockchain?
Any time you have an individual entering data, you succumb to whatever their intentions are. That’s why a lot of enterprises are using Internet of Things devices to automatically feed data into blockchains. That can mitigate some of the problems. But we’re still putting trust into these IoT systems, so it ultimately comes down to the question of, is this data good enough?
We can see tangible uses of blockchain for things like financial services and other public-facing markets. But we’re struggling to come up with a use case that makes sense for our small ecosystem of private partners. How can companies like ours take advantage of this technology?
Enterprises that are not necessarily doing anything at scale don’t need a blockchain. But it makes sense for large companies that have different departments or subdivisions cross-billing each other, or those that are trying to share information across siloed environments. If you have finance and audit and supply chain teams that aren’t sharing information, a blockchain can create a communal ledger where they can share data. The best way to dip your feet into this technology is to pick an end-to-end digital environment, like in intellectual property transfer or even something as simple as billables, and see if you can apply blockchain there.
One of the first recommendations I have for businesses looking at enterprise blockchain is to join a consortium. There are a number of different ones for various industries, geographical regions, or use cases. By involving yourself in a consortium, you’re able to enter an immediate discussion of what’s going on in your space.
Do you have any good examples of blockchain being used for data collection or distribution?
Toyota is doing an interesting project around creating a consortium of automobile companies looking to share information about autonomous vehicles. The risk there is when companies are sharing information on a public blockchain, the business processes they’re trying to disrupt can be viewed by competitors. But by giving up some privacy, companies can still leverage benefits internally while creating a more robust community around data sharing.
Can you address the issue of blockchain scalability?
Blockchains are about 1000 times less efficient than centralized databases. Instead of having one central actor sharing information with a bunch of subsidiary parties, every individual is sharing all of the information with everyone else. So every time a transaction occurs, everyone’s ledger needs to be updated. And the more people you add the the blockchain, the longer it takes. So scalability obviously is a big concern. Even something like Hyperledger, which can handle around 800 transactions per second, pales in comparison to a system like Visa’s that can handle more than 2000.
With all these limitations, how can we use blockchain for identity and access management?
This is something AT&T is actively exploring. They’re creating an internal identity management system that lets people authenticate themselves onto AT&T’s suite of services. What’s interesting to me is finding ways to pair legacy identity systems with blockchain environments, so you can tie up that endpoint using government-recognized identification like a passport or drivers license. In terms of granting access, I usually suggest companies limit the number of employees that need to enter data into the system, to make it more scalable.
How can we begin experimenting with blockchain?
The first thing to do is build a road map. It can take a year or two to go from planning to proof-of-concept, so get started now or you’ll fall behind. A lot of companies accelerate entry into the blockchain space by acquiring companies that are already there. You need to decide if you’re going to build or buy your way in.
If you plan to move aggressively, join a consortium. Hyperledger is great for all use cases. For banking, consider joining r3CEV. If you’re trying to solve end-point or IoT problems, the Trusted IoT Alliance is great.
If you want to save time, explore Blockchain as a Service (BaaS) offerings from Microsoft Azure, Chain, Corda, or Kaleido. They provide you with ledgers you can use that don’t require a development team to set up.
Lastly, define your Web 3.0 strategy. The industry is shifting toward systems managed by networks of peers rather than individuals. You need to discuss how your business will handle trust issues and resolve auditing procedures.
Blockchain at Berkeley provides a number of consulting and proof of concept services, so they are happy to answer any questions you might have about building a blockchain project.