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Blockchain use cases evoke hope, skepticism for savvy C-suite leaders

Many in the financial space -- not to mention other areas -- are pinning high hopes on Blockchain, a type of distributed ledger and the technology that underpins Bitcoin. Here's why

To hear the hype, you'd think that blockchain is destined to overhaul the entire enterprise landscape. But what's a realistic take on blockchain use cases?

To answer that, it's important to start with the definition: A blockchain is a distributed ledger made up of unchangeable, digitally recorded data in packages called blocks that are shared among a distributed network of computers. Electronic transaction records are added sequentially to a blockchain and then can never be altered. The technology underpins digital currencies, such as Bitcoin, and was once almost synonymous with cryptocurrency, though that is quickly changing.

"Blockchain used to mean the Bitcoin blockchain; now it is evolving to include a family of technologies for building databases that are shared across enterprises without a central administration," said Wayne Vaughan, CEO at Tierion Inc., a company based in Hartford, Conn., that turns blockchain technology into a global platform for verifying any data, file or business process.

There are two ways the blockchain is being used -- one is as a value transfer mechanism and the other is as a trust anchor, according to Vaughan.

Tierion and other companies like it, including Blockstack, are doing what's called "anchoring data to the blockchain" to provide proof that something happened, he said.

"So, it acts as a global time-stamping and verification mechanism," Vaughan said. "We like to call Tierion a proof engine … that has applications across many industries."

Healing verification issues with blockchain technology

Blockchain use cases are varied with the potential to benefit supply chain management, insurance claims management, cross-border currency trading and healthcare, to name a few.

For example, Tierion is working with Philips Healthcare, a manufacturer of healthcare and medical equipment, which is interested in using blockchain through Tierion to verify the integrity of the data that is collected from industrial medical equipment and devices.

"So, by using our API to anchor data to the blockchain, anybody else in the world can independently verify the time-stamp and they can verify that the information that has been collected has not been modified," Vaughan said. "That's one real-world practical example."

IBM has already begun to deploy a blockchain-based distributed ledger technology internally for managing its commercial financing business, said Jerry Cuomo, IBM fellow and vice president of blockchain technologies in Armonk, N.Y.

how blockchain works

Big Blue's CFO and head of treasury were looking to reimagine its global financing network, IBM Global Finance (IGF), in the context of a blockchain, Cuomo said.

IGF lends about $44 billion a year, generating nearly 3 million invoices, which results in about 25,000 disputes across the 4,000 suppliers and partners in that finance network. Even though a dispute could stem from something as simple as an incorrect tax code being used for a particular company, that dispute will hold up capital -- as much as $100 million -- for up to 40 days while it is being resolved, Cuomo said.

"We did an internal proof of concept with our CFO and treasurer and created a 'shadow chain' -- a network that sits next to the primary network and shadows it just to capture events across the partners so that we can more quickly resolve disputes," he said.

The shadow chain -- a blockchain enrichment to IGF -- records key events across the lending process, reducing dispute resolution from 40 days to 10 days and putting a lot of capital back into the system, according to Cuomo.

"With our team -- our CFO and treasurer and some of their employees -- we quickly saw that this system, which has been in the making for two decades, works really well," he said. "Maybe it's a bit ambitious to say we're going to replace [the current system], but the CFO kept coming back to the benefits, and one of benefits was that this new system could resolve disputes in the network much quicker."

Capgemini analysts are seeing a number of applications for blockchain in cross-border currency trading and cross-border payments.

"Because these processes are so antiquated and they involve lots of delays, there is lots of checking and rechecking of transactions," said Cliff Evans, global CTO for digital at Capgemini in London. "The banks are looking at that one area where they could decide the benefits to them -- in exchanging money quicker or [processing] interbank payments quicker."

Blocks across the supply chain

Outside of financial services, supply chain management is another area with a number of blockchain use cases. Indeed, Evans said manufacturers could use blockchain-based systems to manage the financial relationships and transactions connected to each step in the supply chain.

"If you're looking at managing your supplier and managing your payments across multiple suppliers, then we've seen a number of [proofs of concept] in that supply chain or procurement process and how you might exchange money with suppliers," he said.

Cuomo agreed that blockchain technology could be used to "reimagine" the supply chain.

"No business runs by itself. Your network of business partners, collaborators, suppliers all work together and form a business network," he said. "Think about a supply chain network from a big retailer or even a supply chain of a large airline manufacturer -- all these pieces have to come together."

[People] have been led to believe that this 'super-duper' new database technology can solve all of the other problems and it's just not the case.
Steve Wilsonvice president, Constellation Research

The airline manufacturer could create a blockchain-based system to manage its relationships with all of its suppliers of parts and components, where every supplier will share the exact same information about each model, he said.

"As you exchange information and things of value, the accountants are all keeping separate records. My accountant counts the number of parts that I've received and that I've supplied," Cuomo said. "It's worked for generations -- we all have our own ledgers and we spend a lot of time working from business to business to reconcile items on our ledgers. So, imagine a world where we all share the same ledger."

Cuomo says that blockchain fundamentally changes the game across three dimensions: time, cost and risk. It potentially reduces the time required to settle a multiparty contract from days to seconds. It reduces costs by stripping out intermediary organizations and processes. And, by enabling permissioned networks to share a transparent and unchangeable ledger, it reduces the risk of tampering, fraud and collusion, he said.

An immutable audit trail for insurance

In the insurance world, the entire industry is based on trust and verification, so insurance technology companies that develop agency management systems for things such as claims management could use the blockchain to anchor initial claims, according to Vaughan.

"The claimant will have proof that he submitted the claim at a particular time with a particular piece of information," he said. "And the audit trails of how claims are tracked across multiple IT systems will also be impacted by this technology."

Vaughan acknowledged that such a scenario will not be implemented anytime soon for a couple reasons. First, there are lots of regulatory hurdles to conquer, just as there are in finance. Second, insurance companies currently rely on outside networks of vendors that are all participating in part of the claims management process.

In a perfect world, an insurance company would maintain a central database of claims data and everyone would work off that data, he said. With Tierion's solution, an insurance company could build an immutable audit trail and maintain the integrity of the data without incurring the expense of integrating their external vendors.

"This is something that you will definitely start to see integrated piecemeal into the insurance industry, and we're seeing that with some of our customers," Vaughan said.

Piercing the blockchain hype

Despite the various blockchain use cases presented by others, Steve Wilson, vice president at Constellation Research Inc. in San Francisco, said he is a "big blockchain cynic."

The problem with blockchain is that it just doesn't do what people think it does, he said.

"They have been so carried away with the magic of blockchain and Bitcoin, but they have been led to believe that this 'super-duper' new database technology can solve all of the other problems and it's just not the case," Wilson said. "So, I'm on a real mission to try and level set and get people to try and understand what it can do and what it can't do and start asking the right questions."

Wilson said people are jumping on the blockchain bandwagon, but they are not paying attention to the problem that blockchain was developed to solve.

The blockchain does one thing, he said. Blockchain is designed to solve the "double spending" problem -- the risk that digital currency can be spent twice -- through a massive group of peer computers agreeing on the order in which things happened on the blockchain.

And that's all it does. No other blockchain use case can be achieved by blockchain on its own. So, the claims of blockchain as a "trust machine" or the "internet of value" are wrong, according to Wilson.

"If you want to do anything else with blockchain, what you need are additional layers of software -- and there is a lot of R&D around that, such as how to create ledgers," he said. "But when you add these things onto the blockchain, you actually undermine the blockchain architecture because it was purely devoted to electronic cash."

The good news is that in the past year or so, "really important" laboratories and consortia have been created that are doing "really good things" and coming out with level-headed distributed ledger solutions, according to Wilson.

There is no rush to get into this technology, and if CFOs don't think that it resonates with their businesses, they need to shop around with big service providers and set aside the hype that's coming from the startups, because some of it is completely crazy, he said.

"Most of the distributed ledger stuff is still on the drawing board," Wilson said. "That's why I say to CFOs, 'Everybody calm down a little here.' This is important, but it's like the early days of flight. And you shouldn't be booking your airline tickets just yet."

Next Steps

How CFOs should get ready for blockchain

Why blockchain could be the next big thing for CRM

Blockchain hoopla in healthcare

This was last published in November 2016

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