Corporate CIOs aren’t shrinking violets when competing for budget dollars. If it walks, talks, or quacks technology, they’ll push ROI projections and lobby hard for the stuff. But mention the word “blockchain” and the CIOs’ attitudes suddenly get adjusted. They become Star Trek’s stone-cold Mr. Spock to the emotional Captain Kirk, forced to tamp down the demands of their besotted CEOs to “get me some blockchain!”
Part of the caution stems from the notion that the CIOs’ bosses have no idea what a blockchain is or what it does. A blockchain is not a product, service, or database. It is a process, one with enormous promise but whose broad uptake is far from assured. It was first utilized to support the Bitcoin crypto-currency, which buyers and sellers use to execute transactions outside of the normal banking ecosystem. But leveraging a blockchain across multiple industries, while certainly feasible, will require much work, robust collaboration between many parties, and a challenging transition to what could end up being different sets of laws and regulations.
“Managing expectations will be critical over the next two years as CIOs try to rein in CEOs who don’t understand blockchain, but are sold on its potential,” Ken Craig, senior vice president, special projects for Birmingham, Ala.-based McLeod Software, a trucking software provider, told a meeting of the executive council of the Blockchain in Trucking Alliance (BiTA), an industry standards group, in mid-November in Atlanta. Craig co-founded BiTA with Craig Fuller, founder of TransRisk, the first futures market for truckload spot-market pricing, which had its coming-out party in late October.
Given the blockchain’s superheated hype, expectation management could be a tall order. According to Fuller, 561 companies have applied to join BiTA, a number he reckons makes the group the largest vertical involved in blockchain. About one-third of the applicants have interests that extend beyond trucking, Fuller said. There is little doubt that many are IT firms exploring profitable ways to refresh trucking’s reputation as a technological backwater and bring it into the 21st century. There is also keen interest in how a blockchain process could transform an industry where time and the chain of custody mean everything, and where the bill of lading—the standard contract of carriage—still rules the roost. About 30 attendees were expected at the BiTA council meeting, but about 160 showed up, Fuller said.
What blockchain is
A blockchain is a distributed ledger that creates a transparent and indelible trail of each transaction, free of hackers and of so-called trusted third parties such as lawyers, bankers, and other intermediaries who’ve historically filled overseer’s roles. In its simplest form, parties within an extended supply chain add “blocks” of information to the broader chain. The blocks could identify as much information as the stakeholders deem necessary for the transaction to progress and be consummated. Cheating would be virtually impossible, proponents claim, because each step in a transaction, whether open to the public or restricted to specific stakeholders (the latter being what is envisioned in trucking) would be witnessed by everyone in the chain.
At the heart of a blockchain’s appeal is the development of so-called smart contracts, or self-executing contracts that would not require a third party to validate them. As envisioned, contracts could be converted to computer code, stored, then replicated on the system and supervised by a network of computers that run the blockchain. Smart contracts enable the exchange of money, property, shares, or anything of value in a transparent and conflict-free way, while avoiding the services of an intermediary, according to supporters of the blockchain process. Like a traditional contract, these new compacts would define applicable rules and automatically enforce those obligations, proponents say. Smart contracts are the “holy grail” of the blockchain concept, said Craig of McLeod.
It is no secret that global supply chains running on legacy systems often get bogged down in the back-and-forth of obtaining multiple approvals for transactions, and are vulnerable to loss and fraud. A blockchain prevents this by providing a secure and quickly accessible digital version to all parties in the chain, advocates say.
“We all collectively work to integrate one level upstream or downstream through point-to-point integration. But then we lose the ability to view the extended supply chain beyond those direct relationships,” Shanton Wilcox, a partner at Infosys Consulting, a Palo Alto-based firm that works with logistics providers, among other fields, said in a recent webcast sponsored by the investment firm Stifel.
By charting each step of a transaction in the form of blocks that are validated before they are added, a blockchain process cuts the time lag incurred in achieving extended visibility and reduces the risk of information being corrupted as it moves through the chain, Wilcox said.Companies that have explored a blockchain for transportation have done so gingerly, to say the least. Danish ocean carrier Maersk Line is probably the furthest along, having completed a test of managing Maersk’s cargoes using blockchain in collaboration with IT giant IBM Corp. Retail behemoth Wal-Mart Stores, Inc. is testing blockchain technology, mostly to track food shipments with its suppliers, according to Gartner Inc., a consultancy that presented at the Atlanta event. Japanese automaker Toyota Motor Corp. is considering a blockchain technology to track auto parts from the point of manufacturing to assembly plants in other countries, Gartner said.
What blockchain isn’t
One wag at the BiTA event referred to a blockchain as “the thing that enables the thing.” Scrambled syntax notwithstanding, the description is fairly accurate. Because it isn’t a product or service, a blockchain doesn’t replace technologies currently in use. Rather, it augments existing business-to-business integration systems with what Craig called a “shared visibility overlay.” The challenge for developers and users will be to determine where a blockchain fits within the framework of the current IT mosaic, Bart de Muynck, research director at Gartner, said at the Atlanta event.
As with other very nascent processes, the jury is out on how a blockchain would actually perform. A present-day blockchain cannot handle a lot of data and is not scalable, experts said at the conference. Attaining the ultimate objective of executing smart contracts will depend on Congress, states, or the courts writing and interpreting laws granting them legal authority, a process that could take years.
There will also be new scrutiny placed on the software developers who are writing code to enable a blockchain. One of the pre-meeting conversations centered on whether a blockchain would dis-intermediate lawyers, who have long filled the role of a trusted third party. One attendee replied that lawyers would still be needed to help ascertain liability in the event of a problem, and that they will be riding herd on the developers. Not surprisingly, blockchain advocates said it is critical to establish a transitional mechanism between paper and smart contracts, and to produce a totally bug-free system for smart contracts. Speakers at the BiTA event emphasized that blockchain processes will not advance without a well-thought-out strategy, rock-solid collaboration among vested interests, and a strong set of industry standards governing folks with different agendas operating in what could become a radically changed world. As one attendee said, “What we are talking about is doing away with traditional trusted parties that have existed for centuries, and replacing them with technology, and with each other.”