The number of “blockchain players” (meaning either established companies or start-ups) that Blocktonite has identified in the past two months has increased from 391 to 528. In other words: an increase of 35% during only 15% of a year.
Month: May 2017
When to use blockchain – and when not to
The Bank of Canada (BOC) recently announced that, after a year long experiment, it would not deploy blockchain to settle inter bank transfers. BOC and a number of financial and “fintech” partners had launched Project Jasper in 2013. BOC found that the benefits of blockchain could not outweigh the advantages of the existing centralized approach. BOC clears about $130 Billion US$ a day through Canada’s inter bank transfer system. BOC and it’s Jasper collaborators found that, although they could address issues related to transaction privacy, they could only do so at the expense of system throughput and scalability and not without leaving the entire system open to a single point of failure (which, ironically, is exactly one of the reasons you might deploy blockchain in the first place). BOC notes, however, that a) in 3-5 years blockchain will have evolved to the point that the “Jasper issues” are addressed and b) that there are other applications for blockchain that BOC will work on in the immediate future.
But the general, and evolving, issue is this: when do you face a situation where a blockchain approach may be advantageous? IBM suggests you consider these questions:
- Do you have a community of business organizations external to your own – with a shared interest in process and data?
- Is there a need for that community to come to consensus on individual business transactions?
- Do you need a way to trace data (or an asset tied to the data) back to its creation? (so-called “data provenance”).
- Do historical transaction records need to be unchangeable? (aka “immutable”).
- Is “finality” important? (is there a need to have a “single source of truth” about the state of the data on the blockchain?
The Bank of Canada “inter bank project” (Jasper), met all of the five requirements above. This is why Blocktonite would add a SIXTH criterion to the above:
Can blockchain technology as it exists today (or in the intermediate future) deliver the performance and security you will require for your application?
Blockchain and the Internet of Things (IOT)
It’s pretty much a done deal that there will be an incredible number of ‘smart’ (aka “internet of things” or IOT) devices connected through the internet in short order. For example, Cisco predicts there will be 50 BILLION such interconnected devices by 2020. However, there are serious questions of security, privacy, data integrity, and scalability associated with this growth.
Enter blockchain, which offers several attractive characteristics that could securely enable the parabolic growth in IOT devices. The Bitcoin blockchain doesn’t quite fit the bill here – but blockchain technologies such as Ethereum and Hyperledger, with their built-in support for “smart contracts” (distributed code that executes when defined conditions are met), seem quite promising.
The potential applications of IOT and blockchain seem limitless. Appliances that sense they need repair and contact maintenance -and even schedule a repairman visit, pharmaceuticals equipped with NFC (Near Field Communications – the kind you see used for Apple Pay) tracked throughout the supply chain from ingredients to consumer, the aggregation of individual pollution monitoring IOT devices for accurate detection of air quality. The IOT/Blockchain combination could power the “prosumer” movement (for example: I’m not using my car for a few days – maybe someone out there wants to rent it). An MIT research paper discusses how smart drones could use the blockchain to decide what to do as a group, and IBM is developing Watson (AI) IOT platforms (both shades of SkyNet)!
A lot of collaborative work remains to be done – but there are already several consortiums plowing ahead.
Here is additional information on new technologies being used for health improvements.
Initial Coin Offerings (ICOs)
NOTE: see Postscript at bottom for update on 6.4.17.
Increasingly over the past 2 years, several start-up companies are obtaining capital via something known as an ICO (Initial Coin Offering). ICO’s essentially combine crowd-sourcing with blockchain technology. Here’s how an ICO works: suppose a start-up (say ACME Blockbuster) wants to raise money for development of it’s product or service (whatever that happens to be). ACME can short-circuit the long, arduous task of getting funds from Venture Capitalists by simply announcing that in – say 30 days – it will issue “coins” to the public at an initial offering price of $X dollars or $Y Bitcoin. ACME offers some information about what it plans to do with the funds raised usually via a “white paper” on its website, and also gives other details such as how many ACME coins the company plans to offer to the public and how many coins ACME will retain. But one key point: this is basically an initial public offering without virtually any government oversight – including none of the normal SEC filings an IPO would entail.
The “ACME coins” are really tokens on a blockchain (e.g. Ethereum, Bitcoin). In our example, the investors would buy ACME tokens using fiat money (e.g. US dollars) or crypto-currency (e.g. Ethereum Ether, Bitcoins) at ACME’s initial offering price. The “ICO industry” already has some service companies sprouting up – such as ICOO, to improve the liquidity of these tokens.
Now, your “ACME tokens” are kind of like shares in a company – but it is a little hazy as to what your ‘token holder’ rights are. You are basically in the game to speculate: if ACME starts getting results in whatever product/service it is offering- the tokens will fetch higher dollar or Bitcoin prices. But don’t expect “stockolder meetings” or SEC filings or anything like that. Interestingly, however, there is an ICO ratings organization already in place.
You can raise a lot of money very fast using an ICO. Digital Capital raised $10M in six hours. 2016 blockchain startups Monero and NEM both had 2,000% increases in value.
There are already exotic variations on above well beyond Blocktonite’s expertise – and, as with the rest of the blockchain world, things are happening incredibly fast.
POSTSCRIPT 6.4.17: a couple of recent articles in the Financial Times are must read items prior to investing in any ICO’s or “distributed autonomous organizations (DAOs: which FT likens to automated Ponzi schemes). Bottom line: unless you are one of the few people that really understand both blockchain technology at an organic level – and the contracts these ICO’s are pro-offering, (or you have money to burn) – stay away!
Supply Chains and Blockchain
There are a growing number of companies and organizations experimenting with the application of blockchains to several types of supply chains. At least on paper, blockchain is a perfect fit for the process of tracking raw materials, through manufacturing, distribution, purchase, consumption and use by customers – along with all the logistics in between these steps.
By having the particular suppliers, transportation companies, import/export and other government agencies, distributors, wholesalers and retailers who participate in any given supply chain on a blockchain – it becomes far easier to a) ensure invoices are accurate, b) trace foods back to the source (e.g. to limit health risks – and prevent deaths like those from a 2012 episode of e-coli infected spinach), c) authenticate the resources in goods (e.g. ensure the absence of “blood diamonds” in jewelry), and d) lower the “frictional cost” of erroneous paperwork (bills of lading, manifests, etc.).
If there’s one company at the center of applying blockchain technology to supply chain integrity – it’s IBM. IBM is testing ‘blockchain powered supply chains’ out with WalMart (tracking Chinese pork from source to consumer), Maersk (replacing the mountains of paperwork as goods get shipped across land, sea, ports and borders),IBM’s own Global Finance division (payment dispute resolution), Heija (Chinese supply chain management company), and several other projects. In addition, there are several start-ups focused on supply chain blockchains – including Provenance, Consensys, and Everledger.