Business on the Blockchain

By Russ Banham, Contributor

Barring the Slack revolution, business today is still often conducted through back and forth phone calls and emails. A manufacturer, for instance, contacts a key supplier to add a few more widgets to next week’s scheduled delivery. The supplier responds in kind.

Yet in the near future, many business transactions will occur on a blockchain platform. In fact, dozens of industry consortia are already developing the platforms to serve as a virtual “ecosystem,” where transactions between B2B customers and third parties can occur.

Nearly three-quarters (74 percent) of respondents to a Deloitte survey in June 2018 said their organizations already participate in or are likely to join a blockchain consortium. The respondents comprise 1,000 executives from multiple industries across seven countries.

From this diverse group, 77 percent of the respondents are interested in a blockchain platform as a way to increase the efficiency of their value chain—the various activities that culminate in the delivery of products or services to customers. Their goal is to create a virtual ecosystem whereby routine transactions occur automatically between B2B customers and other third parties, such as suppliers, vendors, partners, banks, government agencies, insurers, market analysts—and all the other entities that regularly participate in their value chain.

“As more organizations put their resources behind this emerging technology, we expect blockchain to gain significant traction,” the Deloitte report stated. The company emphasized the technology’s potential for “greater efficiency, support for new business models and revenue sources, and enhanced security.”

Nuts and Bolts

Blockchain is widely associated with Bitcoin and other cryptocurrencies. Yet in the context of a virtual industry ecosystem, a blockchain is a database that is shared by companies and third parties across a network of computers. Here, data from each platform member in the consortium is bundled together into blocks, which are then linked together in a chain—hence “blockchain.” Such data might include information (called “records”) on a supplier’s product delivery timeframes, or bank account information to allow monetary transfer.

In the new ecosystem, businesses that want to access data from other consortium members are provided with a digital token—a form of cryptocurrency. Each token includes a cryptographic key requiring a password and other authentication procedures like facial, thumb, and eye scans to gain access to the platform.

Like with Bitcoin, when new information is introduced into the blockchain platform, the network automatically validates the authenticity of the record. Once stored on the blockchain, the data is practically impossible to change. As a failsafe, the network checks to see if the data has been altered, examining its data provenance—the historical inputs, systems, and processes through which the data previously flowed or resided.

“Two of the great things about blockchain technology are its ability to maintain integrity of records and its ability to achieve consensus among industry participants, which is why it attracts so much interest,” said Max Solonski, chief security officer at BlackLine, a financial and accounting automated software provider. “It’s extremely difficult to manipulate the data.”

As a result, the technology presents the opportunity to create a reliable, trusted ecosystem in which business transactions can occur automatically—without human interventions like time-consuming phone calls or emails.

In this system, transactions are triggered by “smart contracts,” a computer protocol that digitally facilitates the performance of a prearranged contract. For example, with its supplier key, the manufacturer that needs more widgets can program a smart contract to automatically updated the order. How? An algorithm measures the manufacturer’s customer demand and inventory levels to determine the threshold triggering the contract.

“Two of the great things about blockchain technology are its ability to maintain integrity of records and its ability to achieve consensus among industry participants, which is why it attracts so much interest. It’s extremely difficult to manipulate the data.”

— Max Solonski, Chief Security Officer at BlackLine

Insurance Blockchain

One of the four insurance industry consortia developing a blockchain platform is The Institutes RiskBlock Alliance, whose 27 members are made up of insurance companies, brokers, re-insurers, and a variety of third-party industry participants.

The alliance has developed a platform that gathers and stores business data from its members to enable more efficient business transactions. “What a blockchain does is establish a new means of trust,” said Patrick Schmid, vice president of The Institutes RiskBlock Alliance. “You can share information from party-to-party on a permission basis without the need for an intermediary, which reduces transactional costs and results in more satisfied customers.”

Schmid provided the example of two drivers in an automobile accident. “Imagine each car has GPS-enabled sensors that knows where the cars are located and can identify each driver,” he said. “This information instantly flows over the IoT to the blockchain platform in the cloud.”

In this scenario, various smart contracts automatically trigger with a tow truck provider, auto repair shop, on-demand driver, claims adjuster, and the policyholders’ insurance agents and carriers. “Without the policyholder doing anything, all these business arrangements occur on the fly,” Schmid said.

Within minutes—while the drivers peruse their emails or text their families and business associates—a tow truck and Lyft driver arrive at the scene of the accident. Payments for these services occur automatically on the blockchain through cryptocurrency or through the platform’s banking members.

At present, the alliance is conducting more than two-dozen different use-case scenarios for its blockchain platform, called Canopy. Examples of use cases include routine insurance processes like Proof of Insurance and First Notice of Loss.

“The first thing that happens after an accident is for each driver to request the other driver’s insurance information,” said Schmid. “We’ve successfully performed a use case whereby each party emails a photo of the other party’s insurance information to their insurers.” This action generates a QR Code on Canopy that simultaneously validates the authenticity of the record and notifies the insurance companies of the loss, automatically kicking the claims process into gear.

The result, according to Schmid? “Claims are paid faster, resulting in more satisfied customers.”

Not So Fast

While 2019 is expected to be a threshold year in terms of industry blockchain adoption, a significant hurdle remains. “One in ten CIOs and senior IT executives we spoke with admitted to `not knowing much’ about blockchain technology,” the Deloitte report stated.

This learning curve is expected to flatten as different industries successfully roll out their platforms, motivating others to follow suit. “Right now, blockchain is where the Internet was at its outset,” said Solonski. “A lot of people didn’t know what to do with it or how to use it. Today, you couldn’t live without it.”

Russ Banham is a Pulitzer-nominated business journalist and author who writes about the intersection of technology business process transformation.