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Industries, Looking for Efficiency, Turn to Blockchains
If
some financial institutions had used blockchains before the last
recession, we may not have had one. After all, banks sometimes didn’t
know which company’s books held bad mortgages, and a blockchain is
essentially a single time-stamped ledger transparent to all its users.
Since
that time, companies in a wide variety of industries, such as health
care, government, food, supply chain management and trade finance,
have begun exploring blockchain technology. The problems they’re
trying to solve mostly come down to inefficiency and fraud.
Gartner,
a research firm, projects the global business benefits of blockchain
technology will total $5 billion in 2018 and more than quadruple to
$21 billion by 2021.
IBM
is helping many companies adopt blockchain technology.
“We’ve
already seen over 400 client engagements, and we’re starting to see
the results of those in the commercialization of those efforts,” said
Marie Wieck, IBM’s general manager for blockchain, contrasting it with
2016, when she saw “blockchain tourism — everyone was sightseeing,”
she said. IBM emphasizes that a blockchain works best as a network, so
she’s now seeing more initiatives focusing on getting a minimum number
of companies on a blockchain.
However,
blockchains for businesses are mostly still experiments, said David
Furlonger, a Gartner vice president.
“There’s
a lot of proof of concept work being done in pretty much every
industry and government, and the interest remains extremely high from
all those participants,” he said. “The focus is very much on research
and development work, not massive implementation.”
Whether
the testing is taking full advantage of the technology’s capabilities
is another matter. Noting that one of the core advantages of
blockchains is decentralization — the ability for a network to decide
by group consensus, not top-down authority — Mr. Furlonger said: “Many
of the enterprise initiatives are heavily centralized replatforming
initiatives, not reimagining the way business can be conducted. That
doesn’t mean they’re necessarily bad if you’re able to produce
savings, improve efficiency. But it could, to some extent, reinforce
the prior paradigm, which was a very heavily centralized model.”
One
product, called a distributed contracting network, was just announced
for Microsoft’s Xbox. Paul Brody, blockchain global innovation leader
at EY, which helped create the product, said it was “a
blockchain-based tool for enabling companies to execute digital
contracts with each other — and very specifically, the primary focus
is on digital media content, rights and royalties around everything
from video games to media and entertainment — music, movies, etc.”
Xbox,
which features games by publishers around the world, has traditionally
tracked and calculated the royalties its content creators were owed
manually and with spreadsheets, said Rohit Amberker, director of
royalties and content operations at Microsoft. The process typically
took 30 to 60 days. The new system is transparent, cutting down costs
by a projected two-thirds, Mr. Brody said.
[Read
more: Confused
about blockchains? Here’s what you need to know.]
One
of the first to use it will be Ubisoft, a game publisher, though once
it is in use across Microsoft’s gaming ecosystem, it will encompass
thousands of content partners, Mr. Amberker said. Eventually, the goal
is for the blockchain to also handle payments and for it to be useful
to anyone dealing with intellectual property or digital asset rights,
including authors, songwriters and developers, he said.
The
financial services industry is further along than other. Insurwave, a
marine insurance program created by seven companies, started at the
end of May for more than 1,000 ships. Shaun Crawford, the global head
of insurance for EY, which is building the program with GuardTime,
said insurance for ships has traditionally been a paper-intensive
business.
It
uses historical data and standard estimates to quantify insurance
coverage divorced from the reality of any one ship’s particular risk.
That can vary based on a vessel’s age, service history, the routes it
travels (whether it passes through conflict zones where ships are more
likely to be hijacked) and other factors. With Insurwave, insurers
can, for instance, increase a premium on a ship set to sail through a
dangerous zone, which might in turn prompt it to choose another
course. Everything is signed through the blockchain.
The
blockchain is in place across the shipping company A. P.
Moller-Maersk’s vessels. The insurance companies Willis Towers Watson,
XL Catlin and MS Amlin are also on the platform.
“It’s
a very sleepy old industry — insurance — and we’re shaking it up a
bit,” Mr. Crawford said. In building the product after working on
proofs of concept, he said: “We realized we’re not digitizing existing
processes, but transforming the way we do business. We had to
re-architect our proposition two or three times to really get the
blockchain thing working, so there’s a big difference between a proof
of concept and the reality of blockchain.”
Another
blockchain-based product in use is at the bank Northern Trust, which
began automating the paper-intensive process of investing by pensions
and endowments in private equity.
Peter
Cherecwich, president of corporate and institutional services, likened
the traditional process to buying a house. “You have to have all the
contracts, pass them back and forth, everyone has to sign them at the
same time, you move the money at the same time,” he said. All this is
automated, and the auditing firm PwC audits the ledger in real time,
as opposed to after the fact.
By
year’s end, a joint venture between Maersk and IBM will use a
blockchain instead of masses of paper to manage the movement of goods
on ships from suppliers to consumers. This blockchain is complementary
to Insurwave. A shipper of avocados from Kenya to Rotterdam, the
Netherlands, for example, needs a certificate of origin signed by
authorities in Nairobi, another document stating the fruit has been
inspected, and a bill of lading, packing list and commercial invoice.
All the documents, which have to be certified by the authorities, are
often shuttled by motorbike in Kenya for signatures.
After
traveling on a ship, those documents are sent by courier to the
Rotterdam customs broker. It takes four to six weeks to validate the
documents, so the cargo is released under bond; if anything doesn’t
check out, it can be drawn upon to pay penalties. That single shipment
involves 30 entities encompassing more than 100 people, requiring more
than 200 exchanges of documents, said Mike White, chief executive of
the joint venture. A problem anywhere along the line causes a delay, a
drawback with perishable food.
“All
those documents are digitized, available electronically, and with the
government authority, the customs agents, the shippers, the carriers
and the terminals,” Mr. White said of the blockchain. “Everybody has
access to the documents they need to see, and everybody involved in
that transaction can identify immediately if there’s been changes
made.”
The
venture aims to have more than 50 percent of the major trading routes
connected to the platform in three years, but will have competition
from Foxconn Technology Group’s coming blockchain-based supply chain
software.
Brian
Behlendorf, executive director of Hyperledger, an open source
blockchains project managed by the Linux Foundation, says companies
that work in transactions or that serve as a system of record for an
industry will have to adapt.
The
technology, he said, “does force them to transform in the same way
that companies that were information-centered have had to transform
with the rise of the internet. That same kind of thing will hit any
company about transactions or about being a system of record for an
industry. If they transform themselves before their competitors do it,
they’ll have a future.”
