Cryptocurrencies such as Bitcoin dominate the news — but away from the headlines, large enterprises are increasingly finding transformative applications for blockchain, the technology that underpins cryptos. Amid the swirl of these rapidly-developing technologies and powerful business dynamics, how are business leaders reaping the benefits?
Blockchain enables new ways of setting up and maintaining trusted ledgers. As societies and economies depend on trusted ledgers, blockchain holds the potential to significantly change the ways many businesses operate.
Blockchain is a type of distributed ledger technology (DLT). It is geared towards decentralization, which is consequently set to be a defining feature of Web 3.0, the next iteration of the internet. These technologies have the potential to alter and diminish the roles played by centralizing organizations, such as banks and law firms, and even by powerful newer entities like Twitter and Facebook. Depending on your industry, it's worth paying close attention to how blockchain technologies are evolving and what kinds of applications are emerging.
DLT (frequently used interchangeably with blockchain as a term) is often combined with tokenization, which allows a wide variety of assets to be held and traded in new ways, and they are key reasons for the boom in cryptocurrencies. DLT, blockchain and tokenization allow not just record-keeping to be decentralized, but decision-making too, particularly through the use of tokens.
A clear use case for DLT has already emerged around transforming the efficiency of ecosystems — groups of organizations, for instance large enterprises in the same industry, which need to work together, sometimes while also being in competition with each other. DLT allows more effective collaboration and information sharing among players in the ecosystem.
It allows ecosystem members to jointly maintain important digital records that are trusted by all the parties — which represents a huge efficiency gain. They can deploy digital smart contracts between each other, rather than rely on myriad hand-processed one-to-one agreements, or on a third party to coordinate them all.
An example of this can be seen in Thoughtworks’ partnership with VAKT, the world’s first enterprise-level blockchain platform. VAKT brings together organizations in the commodities trading space, including BP, ING Group, Saudi Aramco, Shell, and Société Générale. Its aim is to transform the industry, by using blockchain to make the energy post-trade process much more efficient.
When commodities are traded, it prompts a process of recapping and confirming the deal, trade finance, logistics and invoicing. All of this has, historically, generated a vast amount of paper record-keeping and amendment on manual systems, which can be time-consuming and error prone.
VAKT has created a digital ecosystem for its participants powered by blockchain, smart contracts and machine learning. It uses DLT — based on the Consensys Quorum blockchain platform — to make energy post-trade processes faster, more accurate, and more secure. It also replaces unwieldy email and fax chains with digital records that are simpler to audit. It creates a single, transparent and time-stamped source of truth for all parties, on top of which applications can sit, creating efficiencies and giving rise to new opportunities.
Use cases similar to VAKT can be seen across many industry verticals where multiple parties regularly need to work together, but find this hindered by the continual need to confirm the details of, for instance, transactions and logistics.
An example is Covantis — a blockchain-based platform launched in February by six global leaders in agribusiness and food to support global supply chains. Already it is helping to organize post-trade execution for corn and soybeans from Brazil, with companies using the platform to share contractual notices, documentary instructions and documents related to shipments.
Another example here is Walmart, which is encouraging its network of suppliers to use a blockchain-based system to improve traceability, having created pilot projects using the technology to track the origins of mangoes and pork. Its system lets consumers scan a QR code to check the origins of a product. Carrefour is also using similar technology for food and clothing.
The diamond industry, another industry centered around physical goods, is working to unlock blockchain’s potential to improve supply chain issues and traceability, to combat fraud and theft and to improve ethics. De Beers has created its Tracr platform to track diamonds through the supply chain, and last year it announced it had tracked its first 100 high-value diamonds from mine to retail.
Meanwhile start-ups are creating platforms using blockchain to improve traceability in supply chains. These include London-based Everledger — which offers solutions for high-value consumer goods such as art, diamonds and wine — and which has received $40m in backing since 2015 from investors such as Tencent and Fidelity.
Ways for market participants to co-operate using blockchain can also be seen around digital goods — for instance in the music and video industries, where it offers support for digital rights management, and in the digital art market, where non-fungible tokens (NFTs) provide new ways to organize and record ownership.
Blockchain also has potential for helping medical records to be stored in a secure and tamper-proof way, while in the travel and leisure industries, blockchain’s smart contracts and shared ledgers could improve loyalty schemes. Across industries, it provides opportunities to increase transparency and traceability in supply chains, allowing improvements in sourcing and recycling.
Another transformative use of blockchain is on the rise as both enterprises and financial institutions are recognising its usefulness for transforming everyday processes. As enterprises explore blockchain’s potential and build on it, the technology is increasingly being seen as a way for well-established players in the finance sector — which has pioneered involvement with blockchain — to make processes such as compliance and settlement more efficient.
For instance, in the UK, the Financial Conduct Authority is working with the Bank of England on the Digital Regulatory Reporting initiative, with the aim of speeding up compliance. “By connecting to firms through blockchain and API technology and implementing machine-readable and executable regulation, compliance checks can be completed in near real time," said Nikhil Rathi, the FCA’s chief executive, in September.
In the US, the Depository Trust & Clearing Corporation (DTCC), which provides post-trade clearing and settlement services to the financial markets, has announced it will go live early in 2022 with a blockchain-based solution to shorten stock settlement times.
Many enterprises will already be working with banks which are making use of blockchain. JP Morgan’s Liink — formerly Interbank Information Network — uses blockchain technology to enable institutions to exchange information about payments, and has more than 400 institutions signed up, including 27 of the world’s top 50 banks.
R3, founded in 2014, began as a consortium of 60 banks formed to build blockchain applications. It has evolved into an enterprise software company and has developed a purpose-built blockchain network and platform called Corda. In November its technology helped launch the first digital bond using regulated market infrastructure, on Switzerland’s Six Digital Exchange.
The uses of DLT and blockchain extend, of course, far beyond simply enabling cooperation between incumbent businesses through applications such as shared record-keeping and smart contracts. They provide the underlying technology on which cryptocurrencies and central bank digital currencies run, both of which have the potential to disrupt enterprises very significantly.
Cryptocurrencies are already leading to the creation of new kinds of business, beyond the crypto coins themselves, of which there are now more than 6,500 in circulation.
One such new business is Xapo, founded in 2013. Initially a Bitcoin custodian, Thoughtworks is helping Xapo to drive digital innovation and global expansion, as it works to become a globally accessible bank, offering US dollar banking services with regulated access to Bitcoin
When Xapo’s founder, Wences Casares, was growing up in Argentina, he saw his family’s savings wiped out three times by events beyond their control, and realized that Bitcoin offered a store of value that anyone could use to protect their wealth. It’s an example of how Bitcoin, and other cryptocurrencies, are decentralizing finance by removing the middlemen — such as traditional banks — and allowing people to store and exchange value in new ways.
Cryptocurrencies offer new ways to buy and sell in a decentralized way — which has the potential to disrupt even relatively new kinds of businesses. Data hosting services like Amazon S3, for example, face a challenge from distributed data storage companies like FileCoin, which was launched in 2014. Using a web-based, decentralized network, Filecoin offers digital storage at competitive rates. It does so by using blockchain technology and providing tokens (Filecoins) as an incentive to those with spare storage capacity.
Similarly, entertainment companies like Netflix face a new kind of challenge from the combined forces of esports and tokens. Together, esports and tokens offer a compelling experience for gamers, who can win value in tokens, and exchange game-related digital goods using the technology. This form of entertainment is likely to compete for the attention of Netflix’s viewers.
Regulating new kinds of value exchanges like these can be difficult. With cryptocurrencies quickly becoming established as a decentralized form of finance — Bitcoin hit a $1 trillion in market value in early 2021 — central banks around the world have become concerned about the loss of control that they represent. Many are working on central bank digital currencies (CBDCs), which are less volatile and easier for them to manage.
The creation of CBDCs is underway at different speeds in different countries. The People’s Bank of China is in the lead, and has already run real-world trials of its digital Yuan, while last month India’s government announced plans both for a CBDC and to ban cryptocurrencies. The Bank of England and the UK Treasury have announced plans to explore a CBDC, but have said the earliest it would become reality is 2025.
CBDCs allow much faster currency-related processes, so their arrival will be highly meaningful for businesses. Payments will be quicker, potentially being credited instantly. They offer the capacity to track payments — though this may create concerns around privacy — while smart contracts can be written into the currency, allowing escrow to function in a more advanced way. Also, cross-border currency flows are likely to be smoother.
The opportunities and risks presented by blockchain will, of course, differ according to whether you’re leading an established business, managing a growth phase company, or an entrepreneur working on a start-up. They will also differ across industry verticals. Amid the hype, the potential for DLT and blockchain’s use for supporting ecosystems for businesses is now clear.
It can be difficult to determine whether to invest in becoming a leader in blockchain technology — for which the outlay could be considerable. Most companies won’t need to build their own underlying technology to start using blockchain - instead they may look to leverage a system like Quorum, Liink or Corda, which can be thought of as blockchain platforms and which offer lower barriers to entry.
For businesses which haven’t already invested in blockchain, steps in research and development are certainly worth taking at least, and the disruptive potential of blockchain, cryptocurrencies and CBDCs is going to affect many businesses. In working with blockchain, care should be taken to understand the environmental effects, given the significant energy that can be used in blockchain computing.
Among the many lessons of Covid-19 is that companies need to be prepared, more than ever, for rapid change that can shake out tech laggards. For enterprises looking for new opportunities, and to futureproof, blockchain needs close consideration.