Safe and Sound
Blockchain technology is breaking out and making sure no one can break in.
For years, the global diamond industry has been working to clean up the trade of its precious stones. The illegal sourcing of blood diamonds from conflict zones casts a long shadow on the business. Even with the international certification agreement known as the Kimberley Process, which was adopted in 2003, there persists violence, theft, insurance fraud, and counterfeits so dazzling they are often mistaken for the real thing.
Now technology called blockchain, a distributed ledger originally created to enable transactions made in cryptocurrency such as bitcoin, is helping to provide greater transparency for a diamond’s provenance. Everledger, a London-based tech startup, uses blockchain’s secure encryption to tag valuable assets with a multilayered digital fingerprint. For diamonds, that includes the cut, clarity, and other defining characteristics of the stone. Whenever a tracked diamond moves from a mine to be cut, polished, and sold, each step gets recorded in a blockchain to verify the stone’s origin and ownership. So far, more than 1 million diamonds have been uploaded to Everledger’s platform.
Tracking diamonds may sound like an unconventional way to use blockchain, but such unorthodox applications are attracting notice as corporate leaders explore what the technology can do. Writing in The Wall Street Journal this year, tech strategist Irving Wladawsky-Berger sees blockchain as “a foundational innovation,” like the internet, that has the potential to transform our economic and social systems.
To get a handle on how blockchain is supposed to work, think of it as a highly secure transaction tool for the digital age and the global economy. At its core, blockchain is an open data structure that makes it possible to create a digital ledger of transactions across a distributed network of computers. The encrypted data can be shared only within a network of known and trusted users—like participants in the diamond-industry supply chain. A participant records real-time data in a “block” of information, which is then linked or chained to another block in the ledger chronologically. Every new block must be validated across the network, which could easily be millions of computers spread all over the world, before it gets added to the chain. There is no central authority in a blockchain; its distributed and encrypted nature create a unified version of the truth.
In theory, this means that data in a blockchain cannot be hacked or tampered with, thereby creating a fortresslike structure. Information, money, documents—whatever needs to be recorded and shared digitally—is considered safe as it moves freely among users.
Banks and financial-services companies were among the first to experiment with how blockchain could facilitate digital currency payments. The boutique investment bank Magister Advisers predicted that by the end of 2017, financial institutions will have invested more than $1 billion this year in blockchain projects, making the technology one of the fastest-growing enterprise software markets of all time. Guaranteeing data integrity is, of course, critical for global banking. “There is an immutability built into the system,” a blockchain strategist at an international banking group told INTELLIGENCE when asked about the technology’s advantages. You just can’t change information, the strategist adds. Blockchain’s distributed nature makes it highly resilient to data theft.
Interest is coming from industries as diverse as retail, shipping, health care, agriculture, and entertainment. Walmart, for instance, has partnered with IBM to test a version of blockchain to monitor food shipments traveling from farms and factories to its stores, with the goal of being able to quickly zero in on the source of any tainted products. The Danish shipping giant Maersk is trying out blockchain-based freight tracking in an effort to manage its business more efficiently, including the volumes of paperwork required whenever goods enter and exit ports.
Although blockchain remains experimental, a 2016 article published in The Wall Street Journal described the technology as a “catalyst for massive change.” It could fundamentally alter the way business is conducted and how we manage our digital lives. But is blockchain ready for its big moment?
One possible roadblock is the simple fact that blockchain is highly abstract and complex by design. While the internet helps us gather, communicate, and use information, blockchain is akin to the Internet of Value or the Internet of Money, the father and son team Don Tapscott and Alex Tapscott say in their 2016 book, Blockchain Revolution.
Blockchain is also viewed as a potential aggregator of trust at a time when so much personal and financial information lives online. “Blockchain is the answer to a question we’ve been asking ourselves since the dawn of the internet age: How can we collectively trust what happens online?” Rob Marvin wrote in PC Magazine.
In the near future, blockchain could become a platform for everyone to know what is true, because it would be the repository for all corporate, legal, and personal documents that can be coded, the Tapscotts argue in their book. Structured recorded information, such as deeds and titles of ownership, insurance claims, marriage licenses, and even votes in an election, may be stored in a blockchain. The technology could become a digital ledger capable of connecting people, data, processes, and things, according to the Tapscotts.
The technology may also play a supporting role in social change. Its mass-participation ethos could increase peer-to-peer collaboration and help people take action. Indeed, current blockchain efforts include disrupting human trafficking by establishing secure identification systems for people who are vulnerable to exploitation, and preventing fraud by allowing those from developing countries to register their land in a decentralized database.
More and more, corporate leaders are taking cautious steps to assess this new technology, and adapt and apply it to their needs.
In a survey this year, IBM asked almost 3,000 C-suite executives from around the world about their blockchain plans. The survey found that 33% of organizations across all industries and regions were considering or actively engaged with the technology. Of the executives surveyed, 8% on average indicated that they were already experimenting with, piloting, or implementing blockchains.
Despite their cautiousness, some executives believe that blockchain may disrupt the business models, platforms, and processes they depend on, from e-commerce to peer-to-peer services.
Blockchain can enable the direct and secure transfer of money between parties, all while avoiding an intermediary such as a bank, credit card company, or online service such as PayPal. The cooperative nature of blockchain means that travelers could rent a room directly from a highly rated host without paying a commission to a site such as Airbnb. Insurance companies could offer new policies that are only valid for a few hours, thanks to the open and accessible nature of blockchain.
Jim Puzar, vice president of IT strategy and execution at Flex, says the company is interested in blockchain for tracking inventory through supply chains. The technology would allow the creation of communities that can transact with one another in a trusted environment. “The transparency level is very high,” he says. “You don’t have hidden ideas or hidden things going on inside the blockchain because it’s all open to everybody who has agreed to a certain set of principles.”
For Flex, with its focus on designing and engineering supply chain management systems, blockchain could be deployed to track records for equipment that’s moving from one owner to another, or to document a chain of custody for a particular inventory. Another use: assigning immutable ownership of an intellectual property design. Because Flex is essentially a conglomerate of partners that do business together along a supply chain, blockchain could facilitate trusted connections between parties and, in turn, foster greater collaboration.
In the music industry, blockchain could help prevent piracy while allowing artists to sell directly to fans and make licensing songs easier all around. Grammy-winning singer-songwriter Imogen Heap has already created a blockchain platform for musicians called Mycelia. In the fashion world, designers and brands could use blockchain to discourage knockoffs.
For health care providers and hospitals, blockchain could improve recordkeeping, providing doctors with accurate and up-to-date information while maintaining the privacy of their patients’ data. Meanwhile, pharmaceutical companies may be able to tag drugs with identification numbers, much like what’s already happening with diamonds, to thwart counterfeiting and theft.
A number of startups are even developing blockchain applications for agriculture. Targeting farmers and food retailers, as well as consumers, systems from these businesses monitor food supply chains from a farm to processing at the grocery store. Blockchain can provide granular provenance data, validate organic and other certifications, and enable faster payment to farmers in rural regions.
At this stage, it’s uncertain when blockchain will move from experimental to mainstream. PC Magazine’s Marvin predicted, “Within the next handful of years, large swaths of your digital life may begin to run atop a blockchain foundation—and you may not even realize it.” Others, including Wladawsky-Berger, say that blockchain’s full impact is more likely to unfold incrementally over decades.
The hurdle to adoption is not the technology itself. There is nothing particularly new or revolutionary about databases, program interfaces, or the digital environment that allows blockchain to function.
But to accelerate the adoption process, blockchain will require new standards that extend beyond its use with digital currencies. More complex applications for the creation, management, and exchange of valuable assets stored on a blockchain, from property deeds to diamonds to bank accounts, are also critical to adoption. Moreover, blockchain needs stronger governance based on a multi-stakeholder approach, much like the international organizations that helped shepherd the World Wide Web to the mainstream, the Tapscotts wrote in a white paper for the World Economic Forum this year.
Bringing people together to support this new community-based technology may also prove difficult. All of the partners involved have to see value in blockchain, be willing to sign up to take part, and agree to a certain level of transparency, Flex’s Puzar says.
Still, Flex continues to look into the potential this new technology holds. “Blockchain definitely has promise,” Puzar acknowledges. “We’re kind of kicking the tires and seeing what we can do with it.”