Every business leader knows that friction is the enemy of speed and business growth and a major source of friction is the settlement of transactions. Think of international trade, for example, and what it takes to move manufactured goods from China to the US. It’s a laborious process that hasn’t changed much since Marco Polo set sail for Asia in the 13th century. Today a new technology has the power to vaporise much of the friction that comes when business entities want to exchange assets. It’s called blockchain and there are five things about it that CEOs should know:
What is blockchain
Blockchain is a novel new methodology of keeping track of transactions in distributed databases safely and securely. It allows multiple people who have the permission to see the transactions or even to approve the transaction in real time. In essence, everyone that is permitted can see what just happened and can keep a record of what has happened indefinitely.
How it works
The two defining concepts of blockchain are “business network” and “ledger.” A business network – in this case, it’s a literal online network with multiple decision makers in the network — is made up of market participants such as banks and securities firms. The networks, in many cases, are permissioned; only legitimate members can take part. Members of the network exchange assets through a ledger, which each member possesses and whose content is always in sync with the others. Assets can be tangible (such as pallets of goods in a factory) or intangible (such as intellectual property or office leases.)
When assets are transferred, a record of that transfer is indelibly stored in a tamper-proof system, so every member of the network will always see the same set of information. Members then vote on whether each transaction is legitimate. Together, this enables the trust, accountability and transparency that make blockchain so compelling.
What it gives you that you don’t have now
For one thing, there are incredibly fast settlement times. Blockchain lets companies settle transactions in seconds instead of days. It also reduces costs by removing intermediaries and drastically reducing on tampering, fraud and cybercrime.
But faster, better and more trusted business processes are only part of what blockchain can do. This technology will enable companies with visionary thinkers and the courage to disrupt to re-imagine and reinvent today’s most fundamental business interactions – in the same way, the Internet drastically changed how we communicate with each other. For example, IBM, Walmart and Tsinghua University are using blockchain to solve the paramount problem of food safety. By allowing various members within the supply chain to see the same records, blockchain is creating transparency and efficiency that has never before been possible.
Who’s already using it?
This is not future-speak. The industry-first blockchain solution based on the Hyperledger Fabric and built by IBM and Maersk, the global leader in transport and logistics, was made available to the shipping and logistics industry. The solution will help manage and track the paper trail of tens of millions of shipping containers across the world by digitising the supply chain process from end-to-end to enhance transparency and the highly secure sharing of information among trading partners.
When adopted at scale, the solution has the potential to save the industry billions of dollars. The solution is designed to help reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.
A recent IBM study predicts that by 2017, 65 percent of banks plan to start using blockchain. One stereotype-defying finding to come out of that study is that disruption is just for start-ups.
While banks and financial institutions are a natural place to apply this kind of technology, we predict that blockchain will make its presence known across many industries, transforming functions as diverse as gaming, multi-media rights management, car rentals, and government I.D. creation, to name just a few.
How to get started
There are advantages to being an early adopter of blockchain technology – and risks in letting your competitors go first. To begin with, identify a use-case in your business that requires distributed data and distributed accountability, and is, therefore, amenable to a blockchain solution. Two, define a narrowly scoped version of the use-case, for example with a small number of suppliers and approvers. Finally, with the help of a professional, design a solution using one of the major blockchain platforms.
Every once in a while, a new technology comes along that sets the business world on a new course. The blockchain is that kind of technology. Now it’s up to business leaders to decide if they want to join the trailblazers using blockchain to rethink enterprises, ecosystems and entire economies. That kind of vision opens up whole new worlds of possibility.
The writer is the East Africa Country General Manager- IBM