The days of blockchain being synonymous with Bitcoin are long gone. Blockchain technology has already been implemented for various processes in governments, supply chain management, energy grids, healthcare, and media, to name just a few of its myriad applications. NewtonX recently aggregated in-depth insights from a total of 50+ senior blockchain experts to forecast the top unexpected blockchain applications most likely to revolutionize the professional world. The sources for these insights range from an in-depth interview with the CEO of a leading smart insurance contracts company, to a survey of 25 executives investing in blockchain for enterprise. These insights consistently pointed to three primary use cases: smart contracts, audit trails, and workflow and transactions in supply chain management.
Enterprises that are investing most heavily in blockchain technology typically meet one or more of the following use cases:
- Need for data to be shared across multiple parties without a central authority
- Need for regulatory compliance
- Need for a verifiable audit trail
The variety and scale of enterprises that have these needs cannot be underestimated; as the CEO of the smart contracts provider said, “Distributed ledgers can streamline any cross-party area of business in an extremely simple and visible way. Most companies could use that.” That said, NewtonX also identified key weaknesses in private blockchains and barriers to large scale adoption across even the most applicable use cases.
These are the three primary areas in which blockchain is impacting the enterprise world — along with the barriers for each.
Smart Contracts for Insurance
The insurance industry is built on contracts — perhaps more so than any other industry. Every interaction between the policyholder and the insurer is based on keeping track of a contract through its lifecycle. Because of this, having a trackable record of contract changes, iterations, and invocations (payouts), is crucial — in fact, it’s the bread and butter of the insurance industry.
Smart contracts on blockchain can self-execute agreements that can go through multiple validation points and be stored on an easily trackable platform. They are built as if-then statements, which allows them to be automated through a verified process. Transactions in a smart contract setting automatically trigger when (verified) conditions are met, meaning that payout can happen rapidly and without centralized oversight.
There are two problems with smart contracts, though, which are currently keeping them from large-scale adoption, particularly in contexts more complex than insurance (such as BigLaw contracts). The first, is privacy of the parties involved. If you cannot validate the two parties in a contract, then you cannot validate the contract itself — which means that the parties must be de-anonymized. However, this problem can be solved through Zero Knowledge Proofs (ZKSnarks), which obscure the addresses of the sender and the recipient and holds the parties in a separately verified repository.
The second problem is scalability. Because every fully participating node must process every transaction, performing large batches of transactions under tight time limits is still not feasible on blockchain. As the size of a blockchain grows, the requirements for storage and compute power also grow, and eventually it no longer becomes feasible for every node to participate — leading to a risk of centralization.
Audit Trails and Smart Contracts in Finance
Currently, it takes 20 days on average to settle syndicated loans, and according to the NewtonX expert tracker, blockchain could reduce this turnaround by at least half. This would result in 5% growth in demand, which could give investment banks billions more annually. By using smart contracts, the loan agreement could be verified through conditions set on the blockchain for both parties automatically, thereby reducing overhead and improving turnaround.
Blockchain also has applications in retail banking. The mortgage loan industry could use smart contracts to lower processing costs in the origination process in much the same way as it could in investment banking.
Furthermore, blockchain is applicable in finance more so than in other industries because of increasing regulatory compliance pressure for banks and lenders. Because blockchains are immutable, once a transaction is recorded on the ledger, it cannot be deleted or altered. Additionally, once it’s recorded there is 100% traceability, making it easy to audit.
Workflow and Transactions in Supply Chain Management
Increased globalization has made managing today’s supply chains incredibly complex. Supply chains can span hundreds of stages, multiple countries or continents, and include hundreds of invoices, records, and payments. While there are numerous supply chain management systems out there, they are beasts in of themselves, and often have high costs and require immense overhead. To boot, it’s difficult to investigate supply chains when there is suspicion of illegal or unethical practices, even with robust systems on the market today.
Walmart uses blockchain to track the pork it sources from China, recording where each piece of meat comes from, is processed, stored, and its sell-by date. It has also launched a similar pilot with IBM, tracking mangoes from Mexico. Tracking food has proven to be an effective use of blockchain, and has been implemented by Nestle and Dole, among others, as well.
De Beers, which accounts for 35% of the world’s diamond production, uses a blockchain platform called Tracr to track stones from mining to consumer sale in order to ensure visibility and to avoid purchasing “blood diamonds”. This technology also helps ensure the quality and validity of the diamond, and keeps frauds out of the supply chain.
These are just a few examples of how blockchain can be used to improve supply chains. That said, while blockchain is being used my massive companies, it’s not being rolled out on an equally massive scale. De Beers only used blockchain to track 100 diamonds.
A Promising Technology with Serious Limitations to Overcome
Enterprise and government blockchain applications typically require a private blockchain (as opposed to Bitcoin or Ethereum, for instance). Private blockchains still pose major problems, namely, that they usually require privileged access — they often don’t share data and validating authority across every node. Instead, a few privileged network members act as validators to all network transactions, and the rest of the participants receive copies of the resulting data. Sometimes, due to privacy regulations or preferences, data will be partitioned such that only certain nodes see certain data. In this case, there is usually a centralized master node which can see everything. In either case, the validator(s) have vastly more network power while also being a smaller subset of the total participant base. This renders the benefits of blockchain somewhat null — after all, what’s a distributed network worth if validation rights are not distributed at all?
Most use cases for blockchain in enterprise are still in the pilot stage. Because of the technology’s issues with scale and the unproven status of blockchain, the most strategic value that leaders can gain from it currently is in narrow, specific use cases. For instance, the Republic of Georgia uses blockchain to validate very specific, property-related government transactions. The technology is currently best applied to small-scale, specific areas of business, and will continue to function in this niche capacity until several critical problems with the technology are resolved.