| Market demand | In 2018, a survey16found that “65percentof responding enterprises with over 10,000 employees are considering or actively engaged in Blockchain deployment. This marks a significant rise from 2017, when the corresponding figure was 54percent.”This survey also found that “nearly a quarter of companies considering deploying Blockchain had moved beyond proof of concept into trials and commercial rollouts, with dramatic diversification in use cases over the past year. Only 15percentof proposed deployments were now related to payments (compared with 34percentlast year), with significant interest in opportunities across diverse fields including logistics, authentication and smart contracts.” |
| How blockchains are different | •Vulnerability: to hacking and other system failures;
•Robustness: how well they handle problems such as flawed code or being hacked;
•Cost: transaction cost, sometimes referred to as gas;
•Speed and ability to scale up: to large transaction volumes;
•Degree of Privacy: no anonymity vs pseudo anonymity vs total anonymity and conformity with privacy legislation |
| Problems with anonymity | One of the headline features of Blockchains is the potential for anonymity that they offer. Although anonymity is something that can be engineered into or out of any specific Blockchain, the potential for hiding or obfuscating important information is of concern to governments. Without regulation it is possible for entire economies to operate out of sight, thereby avoiding taxes, fees and financial laws such as those on money-laundering. For example, using crypto-currencies to transfer value across borders could allow for cross-border shipment of goods at lower values attracting lower taxes or tariffs with a secondary payment being made via anonymous crypto-currency to compensate the seller for the true value of the shipment. |
| Governments and Blockchain | Governments that lag behind and create or maintain barriers to the use of technologies, such as Blockchain, that can improve the efficiency and effectiveness of business and government processes risk losing the competitive advantage of their national businesses and eventually the revenue that flows from these businesses. To that end, good businesses and good governments are entirely aligned on the motives for the adoption of Blockchain and should be able to work out their differences when it comes to their competing agendas. Businesses can anticipate many of the likely needs of governments with regard to Blockchain applications (such as meeting Know Your Customer and Anti Money Laundering requirements) and can work towards meeting those without external prompting. |
| Securing the Blockchain | The security of Blockchains is typically achieved by having the risks or costs associated with a malicious act far outweigh any likely benefit from its successful execution. Specifically, they seek to make the costs associated with being caught very large and the likelihood of success very low. Protocols such as Proof-of-Stake (POS) are more appropriate in the Blockchains envisaged for most supply-chain applications. Private and semi-private Blockchains are formed by groups of businesses, each of whom has a legitimate interest in protecting the validity of the data being handled. POS protocols allow honest actors to keep attackers at bay by making an attack economically unviable at a very low cost to the honest actors. |
| Speed vs security | Blockchain designers will also have to consider the trade-offs between speed and security required for their Blockchains. Individual supply chains will likely move slowly enough to accommodate the long latency (processing delays) that can accompany the highest levels of security protocols. Aggregations of chains into a holistic system for an entire business or group of businesses will potentially introduce a transaction frequency that demands further examination. Designers will need to take into account the maximum latency that the system can handle and engineer in ways to meet increasing data volumes and the tolerance of users for delays. |
| Accessibility | Strong permission-based access protocols offer a theoretical level of privacy that should meet the most exacting standards of business and governmental agencies. Any user’s access to information within a private Blockchain can be restricted by their permissions. However, as anyone who has worked within a large organization will attest, changing the permissions for access to even privately-held data is not an instantaneous or friction-less process. In order to verify approvals and action changes, several levels of approval may be required, and resources have to be made available, and paid for by someone. Extrapolate these checks and balances across a supply chain that covers multiple users in multiple organizations, across multiple time zones, speaking multiple languages and you could have an access-to-information nightmare. |
| Lability | Even when the process for giving and restricting access to information is solved to the satisfaction of all participants, the issue of liability remains. To whom are appeals made when confidential information is stolen by a malicious actor or shared with an unauthorized user? Who actually owns the data? These are complicated questions that will need to be answered, possibly in law, before Blockchains can capture all the information necessary to unveil the full power of the technology. |
| Smart Contracts Challenges | •First, smart contracts are still in their infancy and getting accurately coded contracts that mimic real life expectations may be time consuming and even require the reengineering of some processes and the resetting of expectations. It is also important to have smart contracts audited for security flaws as these can provide opportunities for hackers.•Second, smartcontracts for funds transfers require that money is effectively placed in escrow until the smart contract terms are met. Even if operating in a fiat currency,this would likely create significant cashflow issues for some businesses that might not be offset by faster payments by their creditors. Cashflow challenges can be further complicated by the fluctuation of cryptocurrencies during the holding period, unless cryptocurrencies which are pegged to fiat currencies (called stable coins) are used or the values of cryptocurrencies stabilize. |
