Our columnist Sahasranaman discusses yet another disruptive technology, Blockchain, that has gained wider awareness in recent times, interestingly, due to the famous or infamous ‘meteoric’ rise of the Bitcoin, a cryptocurrency. Blockchain provided the backbone, so to say, for the rocketing of bitcoin.
It may sound simplistic that Blockchain is just a digital platform to enable transactions, but with many unique features built-in, it gives this technology the potential to provide a quantum leap to many industries in a range of functional areas. It provides the security and confidentiality to transactions. It is versatile, providing three models – public, private and hybrid. It is decentralised and without a regulator. And the transaction costs are incredibly lower. Its applications in industries, according to the columnist, are only limited by our imagination. Read the possibilites and potential of this new technology platform.
Unchaining the Blocks
This column has often focused on topical subjects, and so the final piece of this year cannot but be on Blockchain, the disruptive technology behind Bitcoin, the phenomenon of 2017. The value of Bitcoin after crossing the $1000 threshold on 1st January, leapfrogged to $19000 in mid-December. This spectacular, probably speculative, rise lends a certain notoriety, not just to Bitcoin but Blockchain itself. Bitcoin is just one of the many cryptocurrencies that Blockchain has spawned. As of last month, there were more than 1300 cryptocurrencies, with a market capitalisation in excess of $600 billion. This discourse is about Blockchain, the backbone on which cryptocurrencies, especially Bitcoin, stands tall. But for Bitcoin’s meteoric dazzle, Blockchain would have remained obscured in the shadows.
Blockchain technology is not easy to comprehend, let alone describe in 1000 odd words. What is germane however are its principles that hold out the promise to its adoption in various commercial and industrial applications. It is easy to visualise Blockchain as a distributed digital platform to carry out transactions. Such transactions could be financial, say between two or more banks, or between buyers and sellers. Or they could be an exchange of confidential information like data and knowledge between two or more parties.The salient feature of the Blockchain platform is that it is distributed and decentralised. The transactions occur peer to peer (P2P) without being overseen by a central regulator. The cost of transactions is reduced substantially and this is perhaps the biggest benefit of Blockchain technology. Investment banks estimate that their infrastructure costs would be slashed by an average of 30%.
Types of Blockchain
The information that is exchanged over Blockchain is secure and transparent. They are safe from deletion, revision, and manipulation, leaving behind a trail that can be verified, validated and audited. These are valuable attributes for a business transaction, especially when it comes at a low cost. There are three kinds of Blockchain – public, private and hybrid. Bitcoin, or any other cryptocurrency, is the best example of a public Blockchain, a network that is completely open to everyone to join and participate. A private Blockchain, on the other hand, needs an invitation or permission to join. While individuals within a single business entity are invited to participate in a private Blockchain, a hybrid or consortium Blockchain extends this to several entities in a business cluster. It is the private and hybrid Blockchains that are of great interest to the business enterprise.
A major application of Blockchain across industries comes in the form of Smart Contract. Smart Contracts are self-executing contracts with the terms of an agreement between two or more parties written into a computer program, that resides on a decentralised Blockchain network. This allows transactions to be carried out without the intervention of an external enforcement mechanism. The transactions are speedy, transparent and auditable. Smart Contracts need not be limited to the financial transactions involved in buying and selling of goods; it can be extended to virtually any process that consists of a sequence of events with the outcome of one event defined as the enabling conditions to start the subsequent event. Such a Smart Contract enabled workflow based on “if-then” principle can be used in an engineering design office to smoothen and speed up the work. It can be used to streamline batch processes. The application of Smart Contract principle in the manufacturing industry is limited only by our imagination.
Supply Chain Management
Blockchain technology has the potential to disrupt many industries; manufacturing is only one among them. The applications of Blockchain in the chemical industry are no different from rest of the manufacturing sector. One of the obvious benefits would be in supply chain management. The chemical industry has a long and complex supply chain and by getting all the parties together on a hybrid Blockchain platform, inventory can be managed transparently. Inventory carrying costs can be brought down significantly. Further, Smart Contracts can be used to reduce the cost and time of transactions.
Internet of Things
The chemical industry has been wary of adopting Internet of Things (IoT), widely touted as the harbinger of a new revolution in manufacturing, due to concerns of security. The industry is rightly worried about the vulnerability of the networks on which the machines communicate with each other. The consequences of a cyber attack on IoT networks can be catastrophic in the chemical industry. Blockchain promises to bring the same level of security to IoT networks as in cryptocurrencies. A lot of research is currently underway on Blockchain-based IoT security. This has the promise to build a robust IoT network that can be trusted by the chemical industry, eventually paving the way for its widespread adoption.
Compliance and Sharing
The integrity and trustworthiness of data on a Blockchain network is useful for those sectors of the chemical industry, pharma and food processing for example, that are governed by external regulators. Instead of managing cumbersome paperwork that fosters mistrust, all concerned parties can be brought on a common platform of trust powered by Blockchain. The regulator’s task of monitoring compliance becomes a cakewalk. The same principle can be used by a cluster of industries to share a common infrastructure, say utilities or CETP. By coming together on a hybrid Blockchain platform, the users can provide real-time data to the utility provider for planning and optimising operations. This argument can be further extended to share best practices by multiple locations of a common business entity. Instead of the conventional practice of reports and annual meetings, where such lessons get distorted and manipulated due to human bias, multiple sites can be linked together on a private Blockchain platform of trust and transparency.
It must be mentioned here that the applications mentioned above are possible even in a non-Blockchain environment. But Blockchain brings certain unique properties that bear repetition – trust, transparency, integrity and low cost. Blockchain technology is not without its fair share of critics and sceptics. Most of the scepticism flows from viewing the technology through the lens of Bitcoin. Bitcoin is a powerful demonstration of the power and potential of Blockchain, but it is built on a public platform. The number of transactions is so large that it requires a great deal of effort and energy to validate them. This validation is done by gatekeepers, who are known as miners because they are rewarded by a Bitcoin for their efforts. This validation or “proof of work” to use the jargon, requires the miners to perform energy-intense computational work to decipher a code, that can be then appended to the digital transaction. The energy required for this mining is currently estimated to be consuming 0.13% of global electricity and by 2020 is expected to equal the consumption of Denmark. The enterprise-level applications would, however, be on a private or consortium platform, with far fewer transactions requiring only a minuscule amount of power.
The chemical industry has always been conservative in adopting digital technologies and practices. The industry’s giant BASF revealed mid-year that it is working with a start-up to explore the potential of Blockchain in supply chain management. This could unblock the industry’s mindset soon.