Blockchain explained

Blockchain has moved from hype to value creation in the enterprise

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connecting light pointsThe past three years in blockchain technologies, or what now is often referred to as a use case of distributed ledger technologies (DLT), has shown the best of times and the worst of times. The global volatility of Bitcoin value and the high-profile heists of Bitcoin have shed negative spotlight on the cryptocurrency use case for consumers. Despite the high profile of Bitcoin as the most visible and tainted use case of blockchain, many other use cases have gained adoption in the market.

In fact, enterprise or business-to-business (B2B) use cases have seen a renaissance in how blockchain and DLT craft new business models and give rise to data-driven digital networks. Constellation Research has seen many clients start pilots of blockchain for B2B use cases with surprising success for a wide variety of use cases. In fact, many of these use cases have given rise to joint venture startup consortiums and facilitated the rise of global business networks built on ensuring trust.

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Fundamentals of blockchain

At the fundamental level, blockchain facilitates five capabilities that enable multiple parties to engage without the massive overhead of establishing trust when each party lacks a trusted environment or set of engagement protocols:

1. Method to manage, orchestrate, and integrate data

Blockchain technologies play a role in bringing together disparate information sources at the time of transaction. Most solutions focus on delivering near real-time orchestration.

2. Read, write, and access a distributed ledger without a centralized server

While not all distributed ledgers employ a chain of blocks for secure and validated consensus, all blockchains are distributed ledgers and can existing without centralized management and maintain order of entry via computational trust and independent replication. Through consensus algorithms, a single ledger and record is agreed upon and separately saved on each node.

3. Deliver value exchange over a peer-to-peer network

Blockchain facilitates value exchange via monetary, non-monetary, and agreement among each individual. Individual transactions and overall insights into the graph power the value exchange of the network.

4. Ensure provenance of data via immutable crypto-secure record

Provenance of data occurs when one party assigns a digital token to a high value item. Every time that high value item changes ownership or clears a prescribed event, the digital token is reassigned to the blockchain allowing a buyer to verify the origin and for the seller to understand the journey to the buyer.

Throughout the process, blockchain tracks how the data was collected, where the data was source from, how it was stored, and where and when it was used. This process creates an immutable audit trail. The de-centralized immutable ledger can be permissioned, non-permissioned, or both, to create a massive level of accountability, transparency, and trust. Keep in mind, the verification that tokenization of the physical asset has to be confirmed and validated.

5. Transact business with smart contracts and value exchange

As a client rights management tool, smart contracts orchestrate and enforce a framework of contractual agreements among network participants without traditional legal contracts. Embedded in computer code, these self-enforcing agreements contain a set of rules that define how each party will engage with each other.

When the predefined rules and conditions have been satisfied, the agreement becomes effective and is automatically enforced. Each party can embed business logic, governance rules, and requirements in a few lines of code that is auditable and enforceable.

The move from hype to value creation was represented full force at the recent Constellation SuperNova Awards. In the category of data-driven digital networks (DDNs) and business models, entrants and finalists included many blockchain projects that started with business transformation. The winner of the category, IBM Food Trust, was chosen as an exemplary mode of a secure information sharing platform, built by and for the food industry.

Real world challenges

In a world where globalization of trade and rapid growth of available food, the standard for handling and tracing food has not modernized. The food system depends on manual and paper-based methods resulting in a lack of visibility and trust. Foodborne illness is a common and costly public health problem. The World Health Organization estimates that 1 in 10 people fall ill due to foodborne diseases each year. In the U.S., the Centers for Disease Control and Prevention estimates that roughly 48 million get sick, 128,000 are hospitalized and 3,000 die of foodborne diseases each year.

Beyond safety, consumers want to know the answers to questions such as: Where did this food come from? Who produced it? Where has it been? Is it truly what the label says it is? Is the supply chain sustainable? With blockchain, growers, distributors and retailers can provide consumers digitized certifications of existing organic or fair-trade products along with detailed documentation from different points in the process, from farm to table.

As of July 2019, the Food Trust ecosystem has 100+ global and diverse ecosystem members with 12M+ transactions representing over 8K products, 6M+ food products on retail shelves, 500K traces conducted to date, and the top four food retailers in the United States on our platform. Members receive immediate access to actionable data and insights — from farm to fork. This includes the history and location of any food item, along with its accompanying information, can be readily available in seconds.

Value creation in enterprise

IBM Food Trust shows how organizations can bring a method to manage, orchestrate and integrate data; apply distributed ledger technologies; deliver a value exchange network, ensure provenance of data, and transact business with smart contracts and value exchange while creating new purposeful and mission driven business models.

Blockchain technologies made famous by the Bitcoin use case have now moved from proof of concept to real projects in the B2B enterprise. Success in these technologies require organizations and their leaders to rethink business models, identify opportunities to reconsider where trust can reduce friction, and craft new value chains that arise from a digital world.

As blockchain moves from hype to value creation, five use cases (record keeping and provenance of data, securities and assets, smart contracts digital currencies, and development of trust networks) will dominate 90 percent of all blockchain projects. Success will require early adopters to apply a disciplined approach as fast followers leverage new trends in blockchain as a service and tokenization.

From time to time, we invite industry thought leaders, academic experts and partners, to share their opinions and insights on current trends in blockchain to the Blockchain Pulse blog. While the opinions in these blog posts are their own, and do not necessarily reflect the views of IBM, this blog strives to welcome all points of view to the conversation.

Learn more about blockchain today

Principal Analyst, Founder, and Chairman of Constellation Research, Inc.

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