What is blockchain and why is everyone so excited about it?
For years, pundits declared we were living in the Year of Mobile. 2017, on the other hand, will perhaps be remembered – by marketers at least – as the Year of AI. And, like mobile, there’s a lot of development to come before true AI is an integral part of our day-to-day lives. And so 2018 could just as easily be the Year of AI, too. At the same time, we’re starting to hear a new term: Blockchain. And smart money says it won’t be long until it’s the Year of Blockchain as well.
By now, blockchain is one of those things many of us have heard of, but it’s still so early the average consumer (or even marketer) doesn’t likely understand what it is – or why experts think it will be so important.
It’s sort of like this 1994 clip from the Today Show in which hosts Katie Couric and Bryant Gumbel debate what the Internet is.
“That is like blockchain today,” said Babs Rangaiah, executive partner of global marketing at digital agency IBM iX, at the recent ad:tech event in New York.
So…what is it exactly?
According to SAP – which is an Acronym client – blockchain is “a reliable, difficult-to-hack record of transactions – and of who owns what.”
That means blockchain can include records of land titles, loans and logistics manifests, or anything else of value, really.
What’s more, the records are synchronized across multiple computers – and there is no centralized control.
“Each party owns an identical copy of the record, which is automatically updated as soon as any additions are made,” SAP said.
In addition, every participant can see the data and verify or reject it using consensus algorithms, SAP added.
Approved data is entered into the ledger as a collection of “blocks” and stored in a chronological “chain” that cannot be altered. Et, voila: “blockchain.”
This enables free, frictionless, simultaneous interaction among related parties – which makes, say, the transfer of stock ownership much faster than if the parties involved had to reconcile individual private records. It could also one day make lawyers and brokers superfluous, noted Marco Iansiti and Karim Lakhani in the Harvard Business Review (HBR).
Or, as IBM CEO Ginni Rometty wrote in a Wall Street Journal op-ed:
Consider the process of buying a house, a complex transaction involving banks, attorneys, title companies, insurers, regulators, tax agencies and inspectors. They all maintain separate records and it’s costly to verify and record each step. That’s why the average closing takes roughly 50 days. Blockchain offers a solution: a trusted, immutable digital ledger, visible to all participants, that shows every element of the transaction.
For his part, Rangaiah used a communication analogy: It’s like posting something to social, where everyone receives the same content and changes are made at scale.
The development and maintenance of blockchain is open and shared – a process The New York Times said is “similar to the way Wikipedia is maintained by a decentralized network of writers and editors.”
In other words, ledgers are duplicated across multiple databases, which are hosted and maintained by different parties, and are updated simultaneously, which is why you won’t need need third parties to verify or transfer ownership in your future stock trades, for example.
Why is blockchain going to change the world?
According to network security firm Juniper Networks, blockchain is an inherently secure system because it electronically links the blocks. And not just that – each block is cryptographically tied to the previous block’s information. The data cannot be changed or removed once it’s in the blockchain, which safeguards the data and audit trail.
And because in part it is both cheaper and more trustworthy, blockchain could eventually become the record for all transactions, much like the Internet ended up transforming communications as we know it.
In the words of CEO Ginni Rometty – “What the internet did for communications, blockchain will do for trusted transactions.”
— IBM (@IBM) September 7, 2017
In fact, Gartner estimates blockchain’s business value-add will grow to slightly more than $176 billion by 2025 – and it will exceed $3.1 trillion by 2030.
That being said, blockchain is not a disruptive technology like Uber, which changed transportation, or Airbnb, which upended hospitality, but rather a foundational one that first requires sweeping changes in infrastructure, as well as government buy-in, which will take decades. That was the case with the Transmission Control Protocol/Internet Protocol (TCP/IP), which allows computers to transmit and receive data and had a huge impact on the economy and society, but was the purview of computer geeks in 1972.
Where is blockchain in use today?
Blockchain was introduced in 2008 in a proposal for virtual currency Bitcoin – the HBR story even likened Bitcoin itself to early email in that “you can think of it as a complex email that transfers not just information but also actual value.”
While Bitcoin is a public blockchain, companies like SAP and IBM, on the other hand, offer private blockchains.
Additional examples include Toyota and the United States Postal Service.
Blockchain could also help combat transparency issues in programmatic advertising, Rangaiah said. In fact, IBM is working on a pilot to test programmatic advertising using blockchain to provide transparency about who is involved and how much they are getting paid, he added.
And in August, IBM announced a new blockchain platform and consulting services, as well as group of partners in the food supply chain – including Dole, Driscoll’s, Golden State Foods, Kroger, McCormick and Company, McLane Company, Nestle, Tyson Foods, Unilever and Walmart – who were collaborating to identify where the supply chain can benefit from blockchain, as well as to champion blockchain for the food sector and strengthen consumer confidence in the food system.
According to IBM’s figures, every year, one in ten people fall ill – and 400,000 die – from contaminated food. What’s more, it can take weeks to identify the precise point of contamination, causing further illness, lost revenue and wasted product.
But, IBM says, blockchain is ideally suited to address those challenges.
“In the case of the global food supply chain, all participants – growers, suppliers, processors, distributors, retailers, regulators and consumers – can gain permissioned access to known and trusted information regarding the origin and state of food for their transactions,” IBM said. “This can enable food providers and other members of the ecosystem to use a blockchain network to trace contaminated product to its source in a short amount of time to ensure safe removal from store shelves and stem the spread of illnesses.”
SAP, on the other hand, is offering a blockchain-as-a-service (BaaS) pilot to give customers an easy way to experiment with the technology. Participants include Here, which provides mapping data and location technology; Maple Leaf Foods, a consumer packaged meats company; and British American Tobacco.
In November, SAP said 27 partners have joined its blockchain co-innovation initiative, which seeks to integrate the digital ledger system into the Internet of Things, manufacturing and digital supply chain solutions using the SAP Cloud Platform Blockchain service. Participating companies hail from the consumer products, telecom, retail, pharmaceuticals, logistics, agriculture, high tech, aerospace and defense, industrial machinery, energy and utilities and public services industries.
“At Deutsche Telekom, we see a big potential for blockchain technology in the telecommunication business,” said Hartmut Mueller, senior vice president of business solutions at Deutsche Telekom IT, in a statement. “Our cooperation with SAP will speed up digitalization to the benefit of our customers.”
Similarly, Joe Peraino, director of the Center of Excellence at Benjamin Moore & Co., said in the release, “Benjamin Moore & Co. is interested in exploring blockchain technology to streamline operations and improve efficiencies throughout our supply chain. Our company is particularly eager to explore possibilities with transportation management and simplify the complexities that exist in today’s paper-based systems.”
SAP also said it will join Spain’s Alastria Consortium and the Blockchain in Trucking Alliance (BiTA) to further expand the adoption of blockchain. Alastria, which brings together banks, telecom providers, energy companies, universities, smart city organizations and developers, will allow SAP to strengthen its blockchain ecosystem and network in Europe, the software company added.
What’s your take on blockchain? Are you using it yet? Is it on your roadmap for 2018?