“On the Internet, nobody knows you are a dog,” runs the joke about trust. Blockchain technologies promise to solve the trust problem by making it easier for enterprises to trust the data that has become essential to their businesses.
Simply put, Blockchain is a distributed ledger — a record of ownership. However, unlike a bank account or a land title, the records aren’t kept by one central institution but shared by multiple computers, which have to vouch for a transaction or claim of ownership.
The concept came out of the digital currency Bitcoin, which used Blockchain to verify transactions and record ownership of the binary pennies. The original promise of Bitcoin was that there was no central government to guarantee the currency, nor a bank to record transactions.
Now that digital assets are a day-to-day part of business, the Bitcoin concept of keeping track of complex transactions using Blockchains involving virtual possessions has begun to make sense.
One organisation that is actively applying Blockchain is the Australian Securities Exchange (ASX), which decided in 2015 to replace its 25-year-old CHESS stock-clearing system with a system based on the technology.
ASX CEO Dominic Stevens told an investor conference in May 2018 what the organisation thought Blockchain would deliver for share traders when it is introduced by the end of the decade: “This will allow software development to flourish and infrastructure to be shared in a common ecosystem — thus lowering costs for participants and enabling new products and greater efficiencies to be delivered more rapidly.
“What is particularly exciting is the ability for new innovation to occur once data is made available more accurately and in real time.”
Australia Post is another organisation testing out Blockchain, having joined with Chinese e-commerce giant Alibaba and natural health company Blackmores in a Blockchain project to improve the traceability of food products.
The rise in popularity of Australian food products in China has been accompanied by an increase in the sale of counterfeit food, raising potential health risks associated with adulteration along with a potential loss of trust from consumers and governments.
CEO of Australia Post subsidiary StarTrack, Bob Black, expects the project will deliver real benefits for exporters. “The initiative will leverage our secure, reliable and fast service to support the authentication of Australian products bound for the Chinese market.
“Our food producers have a global reputation as being clean, green and safe providers of food, and we are pleased to help deliver a solution to enhance the integrity of their produce.”
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Dr. Nicholas Nicoloudis, Senior Business Innovation Strategist APJ at SAP, sees other industries benefiting from Blockchain, including logistics — dealing with complex shipping documents such as bills of lading. “This is a complex process, since when items have to be shipped and sent they have to go through customs, paperwork needs to be verified that the items have been checked, cleared and paid for before entering/leaving the country.
“Putting all this information on Blockchain will allow all the parties involved — including port officials, customs, suppliers — to cross-check documentation in real time, optimising the shipping process.”
The Blockchain Challenge
While Blockchain promises to solve many issues around provenance and identity, there are challenges. One key problem is the rate at which transactions can be processed, which is currently around eight per second. This limits the scale of Blockchain implementations.
There are a number of workarounds to overcome this bottleneck. For instance, most banks’ Blockchain implementations take the data-crunching onto their own platforms. This, unfortunately, erodes the idea of having an independent peer-to-peer system, and brings third-party providers back into the picture.
For many companies those third parties may not be a bad thing. Having a provider managing and guaranteeing the system adds a level of comfort and accountability — not to mention expertise.
There are, however, other challenges for Blockchain. Founder and Principal of Blockonomics Advisory, Dai-Kyu Kim, points out there is a lot of hype around the technology. “Barriers are same for every other technology. Corporations and governments are slow to both adapt and adopt.
“Conceptualising benefits and projects will be even harder because it is so hard for people to get their heads around it. So the barrier is understanding. Internet and web were easier to comprehend the benefits — faster, cheaper. Blockchain is faster and cheaper because it’s way, way different.”
Dai-Kyu also warns that companies themselves will be challenged by the changes Blockchain brings to industries, saying “Blockchain may also give corporations upset tummies. It will be interesting to see how corporations handle this new wonder drug that can fix so many ills but also has so many side effects — for the 99 per cent as well as for big business.
“Will corporations let Blockchain out of their innovation theatres and into the real business? The next few years will tell.”
Blockchain in practice
With deep knowledge across many sectors SAP’s industry specialists are taking a keen interest in the potential of blockchain.
Take insurance for example.
According to Stefan Schmidt, Solution Manager at SAP for Insurance, based in Germany, “Digital transformation changes customer relationships as people can go online and use their mobile devices to select and accept insurance contracts without the direct involvement of a person.”
“This transforms how insurance companies compete, the role of insurance representatives, and operational costs. Using the right technology, insurers can provide the same contract at a lower price for customers and higher margin for the company.”
According to Schmidt, Blockchain has the potential to streamline processes like automatic payments, claim initiation and management, risk transfer and micro insurance across a trusted network of participants — whether public or private.
There is a big potential win for insurers in driving down the cost per contract.
“Every member of the network has the same tamper-proof information at the same time, and can trust that it’s accurate and approved automatically by the built-in algorithms,” he said. “It’s not possible to easily destroy or change data in a distributed ledger, so people can be sure that the stored information is correct without any manual review required.”
Another example comes from the pharmaceutical industry, which needs a robust way of tracking returned drugs due to strict compliance regulations.
According to Paul Cocuzzo, Senior Director, ERP Program Integration and Operation at Merck, “We have a legal obligation over time to interoperate with all of our supply chain trade partners to verify and authenticate Merck product before they can resell that product. We’re partnering on a Blockchain-enabled POC to comply with regulations and help fight counterfeit drugs.”
Developed in just eight weeks by teams from SAP, Merck, AmerisourceBergen and Cryptowerk, an SAP Startup Focus company, the SAP Pharma Blockchain POC app uses SAP Advanced Track and Trace for Pharmaceuticals, and runs on a mobile Android or iOS device.
Simple barcode scanning to provide real-time visibility to the location of drugs wherever they might be, including the manufacturer, brand owner, wholesaler and delivery.
“Using Blockchain, we can identify and track drugs by serial number, batch and expiration date,” said Jeff Denton, Senior Director, IT Global Secure Supply Chain. “We can verify drug authentication, seeing exactly where and when items were shipped and packed.”
About the author
Paul Wallbank is the news editor at Mumbrella. SAP is a is a corporate member of the Which-50 Digital Intelligence Unit. Our members provide their insights and expertise for the benefit of the Which-50 community. Membership fees apply.