Blockchain: Blockbuster or bluster

There’s a widely held belief across industries that blockchain will enable future improvements and innovations in areas and ways that might not otherwise be possible. It is likely to disrupt any number of business processes and might even change the way some industries operate. But as with other digital innovations, blockchain is loaded with both potential and hype.

While blockchain isn’t the panacea for resolving all the system inefficiencies and/or information fragmentation that plague some industries, it isn’t just hype. Blockchain fills some of the gaps digitization creates, such as enabling certified transfer of data as opposed to just sharing information. This means that the authenticity, integrity and legitimacy of the information are guaranteed from owner to owner. Most important, it removes the need for an intermediary, which will shake up value chains.

Let’s separate the hype from the hope by exploring the way blockchain is being used in several key industries and how it might improve or even revolutionize areas within those industries.

Understanding blockchain

Part of the reason for the hype around blockchain is that as a technology it is not well understood. So, it’s important to establish what blockchain is and what it is not. Blockchain or distributed ledger technology (DLT) is a public ledger that records and tracks transactions between two or more parties without any trusted central authority. Instead, a network of interconnected nodes independently stores its own copy of the blockchain. Each node helps to keep the transaction history correct by working to “agree” with all other nodes about the contents of the ledger, making the chain reliable, tamper-resistant and trustworthy.

Blockchain was originally developed to introduce a new peer-to-peer electronic cash system that was far more efficient, affordable and secure than any previous conventional banking method. The best-known blockchain implementation is the bitcoin network, an electronic cryptocurrency, but blockchain has far wider applications. Indeed, the assets that are exchanged in a blockchain can be any objects of value recorded and controlled by the network of nodes throughout the life cycle. For this reason, blockchain spans multiple industries and value chains.

A CompTIA report from November 2017 found that 22 percent of companies are developing tools using blockchain in a variety of use cases.

Innovation or hyperbole

An article published on the Invest in Blockchain website enthusiastically titled, “24 Industries That Blockchain Will Radically Transform,” argues that the technology will upend the way many industries operate.

Blockchain has become fairly well established in some industries, particularly the financial and banking industry, where a number of institutions have invested in DLT — for example, for money transfer services, digital currency exchange and even digital security. The technology already is, and will continue to be, important for financial services and could potentially overhaul the global banking system, addressing troubling issues in cross-border friction and large payment volumes in business-to-business payments.

An objective of blockchain is to enforce trust through cryptography rather than by having a central controlling party. This has the potential to disrupt the way organizations and individuals do business, enabling trust between “untrusted” parties.

But blockchain has disruptive potential for many other industries, though not necessarily in the ways that some predict or expect. In insurance, healthcare and the consumer goods industry, for example, there is significant potential to improve information transparency across a wide range of stakeholders. And because it is close to impossible to modify transactions without the knowledge of other stakeholders, fraud and censorship can potentially be eliminated in a blockchain exchange.

However, it’s questionable just how valuable blockchain will be in sharing information in industries with complex, fragmented applications, such as among healthcare providers. As the authors of a 2018 National Institute of Standards and Technology report stated, “The use of blockchain technology is not a silver bullet, and there are issues that must be considered such as how to deal with malicious users, how controls are applied, and the limitations of any blockchain implementation.”

Blockchain also is not a simple alternative for a database, since the very benefits it confers to deter fraud also mean that modifying data is much more difficult and may result in the creation of two divergent paths of data, in what is known as a forking of the blockchain.

There’s no doubt that blockchain is innovative, if used judiciously and implemented with the guidance of experts. It will address previously intractable problems — for example, reducing the cost and complexity of interoperability by automating and replacing fragmented protocols — or provide innovative new solutions to problems we have yet to consider. Progressive industries and companies will need to attempt bleeding-edge implementations before the technology’s full potential is understood.

Disrupting business processes

An objective of blockchain is to enforce trust through cryptography rather than by having a central controlling party. This has the potential to disrupt the way organizations and individuals do business, enabling trust between "untrusted" parties.

Applied across business processes, blockchain can be leveraged to bring either incremental or broad change. Areas where blockchain might disrupt business processes include:

• Process identification. Business process management and process improvement first require companies to identify and evaluate their existing processes. According to the authors of a paper on blockchain and business process management, blockchain offers another dynamic in process evaluation by having organizations focus on “implied strengths, weaknesses, opportunities, and threats.” In this way, companies can identify where it might be most beneficial to implement blockchain, and where potential issues lie. And because blockchain is a powerful interorganizational tool, it will require companies to evaluate not only their internal processes but also the impact of processes on external partners.
• Process automation. To reduce time-consuming manual processes, companies are looking to automation. Because blockchain removes the need for a trusted third party, it is easier to automate processes, particularly transactional and document-heavy processes. Consider, for example, the process of handling contracts. Blockchain programs called “smart contracts” make it possible to automate key processes, such as in insurance underwriting, claims processing or loan processing. Blockchain also gives companies transparency into the supply chain, enabling greater contract management control.
• Process monitoring. Blockchain’s transparency¹ could open pathways to better process monitoring and traceability by using it to build immutable records of transactions for processes such as payment services. Imagine being able to create assessments and audits for cards and payment services that are secure, verifiable, foolproof and easily shared among all stakeholders. Or it could be used to record transactions between involved parties, to verify the movement of products and services in a permanent way. In manufacturing, companies could leverage blockchain to track and trace products and to safeguard and prevent interruptions to the supply chain. However, all relevant data — data within the blockchain and “off-chain” data — needs to be integrated to enable all stakeholders to view and monitor a process and determine where problematic processes exist.
• Process oversight. One of the benefits that blockchain offers is the fact that it is a decentralized technology. What this means is that processes and transactions can be managed and overseen directly without the need for an intermediary. Take card payment services, for example, where fees are paid to several merchant service providers at a cost to the merchant. Blockchain would remove the need for these providers — and, consequently, the fees. Perhaps more powerfully, blockchain might prevent fraud and theft from international transfers, such as the massive Bangladesh bank theft using Society for Worldwide Interbank Financial Telecommunication (SWIFT) messages. Because blockchain creates an immutable record, it could be helpful in preventing fraud, or at least in providing traceability.

An industry snapshot

While blockchain has potential across many industries, the extent to which it can be used in each industry varies. Although blockchain might benefit a company or industry in many ways, there are also challenges that need to be considered and addressed.

Finance and banking

Blockchain has the potential to disrupt the financial services sector — by overhauling the global banking system and enabling faster payments, to quote just two examples.

For institutions to realize the potential of blockchain, they will need to include all stakeholders — regulators, governments, banks and beyond — and ensure broad collaboration to explore and develop new uses for the technology.

A challenge that business-to-business transactions struggle with, especially with cross-border transactions, is managing large payment volumes. Blockchain could overcome those issues, but first the standards and governance needed to protect assets, institutions and people must be instituted.

There is both an appetite for change and a growing number of blockchain-based startups in the financial sector. According to a 2017 PwC report, 77 percent of financial services organizations expect to adopt blockchain within a production system or process by 2020, while 90 percent of payment companies plan to invest in blockchain in their production systems by 2020. And there’s no shortage of app developers for these organizations to turn to, with more than 190 developers identified as of 2017.

Insurance

The claims process is frequently protracted and complicated, often involving coordination among several parties. Typically, an intermediary needs to be involved to manage the process among several distrusting parties.

As the technology continues to mature, companies should consider where and how blockchain might be most applicable.

Given blockchain’s characteristics — reducing the need for trusted intermediaries; providing a tamper-resistant, trustworthy record; and enabling a programmatic transfer of assets stored on the blockchain to reduce the need for human intervention — the technology could be applied in many different ways in the insurance industry.

One obvious use is in establishing the ownership of property being insured, and tracking the transfer of that ownership. Another valuable use, as described earlier in the paper, is smart contracts to automate the execution of underwriting, issuance, claims, verification and the settlement process. Areas where insurance was traditionally considered not worth it or ineligible might benefit from blockchain, such as insuring less valuable assets or providing group self-insurance for groups not eligible for more standard insurance coverage.

With the potential to shake up the insurance industry in terms of cost, speed, security and transparency, blockchain is emerging as an invaluable technology in the insurance industry.

Healthcare

Much has been said about blockchain’s potential to transform healthcare. A report from IBM found healthcare organizations to be ahead of finance when it comes to blockchain adoption, and Deloitte believes it will deliver a new model for health information exchange.

But the use and value of blockchain in healthcare is perhaps a little more complex and opaque than in other industries. Certainly as a decentralized ledger it offers security, reduced storage and operational efficiency benefits. There are, however, regulatory barriers to overcome, and so far, there has been limited uptake of blockchain on the provider side.

For the most part, so far blockchain is being used for secure payments and supply chain integrity rather than for healthcare delivery itself. The problem healthcare struggles with is information-sharing, due to fragmented data across siloed applications, and this isn’t a challenge blockchain can address. Companies that have dipped their toes into the water of patient and consumer data exchange have found there is little appetite for transferring personal data into the cloud.

Having said that, there are some valuable blockchain players in the healthcare space, addressing issues such as prescription management, consent management with regard to personal data, managing medical information through smart contracts and even connecting researchers with users.

The challenge for these startups, and the organizations considering using blockchain in healthcare, will be to create value despite current challenges.

What’s next with blockchain implementation

Blockchain is still evolving, and few in industry truly understand the finer nuances of the technology or how best to apply it. Concepts surrounding blockchain are still being fleshed out, and as yet there are few standards or tools to simplify its adoption. For those companies and industries that are considering or integrating blockchain, it’s important to consider implementation steps carefully.

To start with, companies need to improve their awareness and understanding of blockchain. As the technology continues to mature, companies should consider where and how blockchain might be most applicable. Will it speed up or simplify processes? Will it result in cost reductions?

Once a use case has been identified, it makes sense to run pilots to test the technology and learn more about how well it is accepted within the organization. For example, DXC Technology is putting blockchain to the test in 3D printing proof-of-concept to handle access restriction. The way this works is through the use of blockchain smart contracts that allow an external vendor to see the model for a limited time and allow only authorized vendors to print the model information. Access to the file is removed once printing has been completed, preventing unnecessary or fraudulent use.

Organizations eager to adopt blockchain have encountered technical integration challenges. There are efforts by various organizations, such as the Hyperledger collaborative project, to define protocols for asset exchange, and technologies to improve interoperability will continue to develop. One way to overcome integration challenges in the meantime is to work within a consortium where participants use the same technology and protocols. It also makes sense to leverage existing internal data management standards and apply this to blockchain solutions. In the insurance industry, for example, several alliances are driving adoption of blockchain technology, including B3i, RiskBlock, ACORD and R3. One of these, B3i, has brought together some leading players such as AIG, Allianz, Aegon, Swiss Re, Zurich, Munich Re, Generali, Liberty Mutual and Willis Re, among others.

After an organization has had an opportunity to put blockchain into practice, it makes sense to determine return on investment (ROI) and whether to deploy new services on blockchain as well as integrate other external blockchains. As Deloitte analysts have noted, ROI is the key phrase that encourages buy-in from decision makers when it comes to adopting new technologies.

DXC and blockchain

Blockchain is a rapidly growing area, with wide expectation that 2018 and beyond will see an acceleration in the technology’s capabilities, in the solutions provided and in the ways in which it will be implemented. DXC has been involved in several cutting-edge blockchain projects. For example, a team of young DXC public sector consultants pitched and were finalists in a Blockchain for Antwerp competition with a shared mobility concept. By using blockchain, all users would be able to reserve and use any means of transportation from a single mobile application.

DXC is at the forefront of new technologies, including blockchain, and it has and will continue to develop methodologies to address the types of challenges inevitable with technology revolutions.

DXC has developed a secure, decentralized Industry 4.0 network based on blockchain technology with German blockchain specialist Contractus. The network offers a secure, decentralized network in which the participating companies can interact flexibly. For example, it enables legally compliant interaction between partners (smart contracts), automates the conclusion of contracts, documents the degree to which contracts are fulfilled or serves as a platform for networked production.

Finding the value and bringing it to life

Our lives, how we interact and transact, have all changed in many ways since the dawn of the digital age. The past few decades of technical evolution are looked at by some to be the internet of information, while the coming few decades will witness a transformational onset of the internet of value.

Together with other technological breakthroughs, blockchain is now playing and will continue to play an important role in digitization and business improvements. However, it isn’t a cure-all. Its impact — and whether its benefits are fully realized — will rely heavily on how it’s applied relative to the different needs and challenges of each industry. When thoughtfully developed, considered and implemented, blockchain could help to overcome many intransigent issues and transform many industries in significant and unexpected ways.

In summary

Blockchain is still evolving. Now is the time to get educated. We recommend considering a blockchain approach based on the 10 criteria outlined in this infographic.

¹ BPTrends.com: “Class Notes: Blockchain & Business Processes” — Jan vom Brocke, Jan Mendling, Ingo Weber, April 2, 2018;
and
Aberdeen Group: “Blockchain in Manufacturing: Better Automation and Traceability on the Horizon”
— Greg Cline, Dec. 12, 2017

About the authors

Lisa Vincent-Morrison is the global portfolio marketing director at DXC. She is responsible for the design, development and execution of go-to-market launches and multi-touch campaigns for DXC Business Process Services. She has held senior-level positions in IT for the last 21 years and has worked with executive boards in multiple sectors.

Wade Funk is a BPS Cards & Payments solution lead with over 30 years of IT servicing experience in financial and other industries. Prior to solutions, he worked in payments product development and management roles supporting sales and marketing. He has authored several payment industry process patents around converting paper payments to digital.