Web3. Cryptocurrency. Non-fungible tokens. Those are the words many think of when they hear the word blockchain.
These are the areas where this emerging technology has garnered the most popularity over the years, but blockchain as a technical concept can be applied in many different ways, and it has uses in the enterprise, particularly when it comes to supply chain management.
“There’s — less so now — I think a conflation of Bitcoin and cryptocurrencies and blockchain that’s becoming better over the years that I’ve been engaging in it,” said Cindy Vestergaard, VP of special projects and external relations at blockhain API company RKVST. “What is less known is that actually a couple of months before the Bitcoin whitepaper was that Estonia was already looking at distributed ledger technology (DLT) for securing services among its citizens and protecting its citizens’ data. So while Bitcoin gets all the popularity, it’s actually the enterprise, if you will, or the permissioned DLT platforms that were already starting to move at that time, and then obviously, in parallel as well.”
She also noted that blockchain is just one type of DLT, but it has become so associated with cryptocurrency that many people have this association in their head. But there are many types of DLT other than what is used in cryptocurrency.
According to Martha Bennett, VP, principal analyst at Forrester, there are two major types of blockchain: permissioned and permissionless. Permissionless, or public, blockchain is the type that cryptocurrencies run on. Permissioned blockchains are what people are talking about when they talk about enterprise blockchain.
Bennett said that even NFTs have their place in the enterprise, at least as a technical concept. In essence, all an NFT is is a representation of an asset, which makes it really great when it comes to supply chains.
“[Blockchain] can be useful in any situation where you’ve got multiple parties involved and where it’s important that everybody has the same version of the data, and that there is a reasonable guarantee that nobody has messed with that data, falsified the data,” she said.
Of course, this can also be accomplished without needing a blockchain, she noted. A reason one might want to use a blockchain, however, would be if you want a different governance model besides the one in which a single party is in charge, or if you want to make use of smart contracts, which are essentially automated business rules.
An example of this data verification that Vestergaard shared is determining whether photos are authentic and original.
“Let’s say, I take a snapshot of you right now, Jenna, but I removed your glasses. In another picture, I tried to superimpose that and it won’t let me do it. Because it’s not the original, and it doesn’t have that original hash.”
She explained that this can also be used for files. “It could be used for anything that has data that follows it wherever it goes and needs to be immutable, secured and shared,” Vestergaard said.
However, according to Bennett, it’s a misconception that blockchains are by definition more secure. “The blockchain will only preserve the data that’s fed into it,” she said. “If the data is fraudulent, all the goods associated with the data have been tampered with. No blockchain can help with that.”
For example, this has been something that has come up in the luxury goods industry. “If the goods are actually fake at the point they enter the supply chain, or if the fake bags are made by the same factory as your real bags, then how do you tell a fake from the real goods?”
What about Web3?
In addition to supply chain, one of the other use cases for blockchain that gets brought up frequently is Web3, which is an overhaul of the internet that would make it decentralized and blockchain-based.
The Web3 Foundation is a non-profit organization aimed at driving this initiative. Its goals for Web3 are an internet where:
- Users own their data
- Digital transactions are secure
- Online exchanges of information and value are decentralized
However, the idea is still in its early stages, and if it takes hold, it’ll likely be a while before we’re there.
“The current environment is dominated by speculators,” Martha Bennett, VP, principal analyst at Forrester, said in an episode of the research firm’s “What it Means” podcast. “Sadly, some of the more worthy endeavors get drowned out or even hijacked by the more scammy elements in the environment.”
Another analyst firm, Gartner, also predicts Web3 won’t overtake Web 2.0 (the current web) by the end of the decade.
“Web3 innovations will take the internet into new realms and give rise to applications not previously possible,” said Avivah Litan, distinguished VP analyst at Gartner. “But Web 2.0 still has advantages in terms of scale, customer service and customer protections. Potential Web3 risks include lack of customer protections, new security threats and a swing back to centralized control, so organizations will want to shore up governance and risk management before replacing Web 2.0 applications.”
Is blockchain overhyped?
According to Bennett, outside of the financial services sector, “we are still not at the point where we can confidently say that blockchain really is delivering the business value that people are looking for, simply because it is incredibly difficult to actually set up a blockchain network that at the end of the day really needs all those blockchain features,” she said.
Stack Overflow recently conducted a survey to find out what new technologies made it past what Gartner refers to as the hype cycle. Many new technologies can stir up excitement in the industry, but not all will actually see widespread adoption.
They ranked technologies on a scale of experimental to proven and positive to negative impact.
On a scale from zero (experimental) to 10 (proven), blockchain technology came in towards the middle at 4.8. And on a scale from zero (negative impact) to 10 (positive impact), it received a score of 5.3.
Another survey by Foundry echoes these sentiments. It found that 51% of respondents were not interested in adopting blockchain technology within their organization.
Compared to previous years that the survey has been conducted, interest has not really improved. In 2020, 39% of respondents said they were researching the technology and in 2021 that had dropped to 34%. In this year’s survey, only 25% of respondents were researching it.
Successful blockchain implementations in the enterprise
Yet, there have been some successes in the technology’s use. For example, Walmart has experimented with blockchain technology to enable food traceability.
According to a case study it published, in 2016 the vice president of food safety asked his team to trace a package of sliced mangoes to their source. They were able to do it, but it took them 6 days and 18 hours to track it down.
Then, the company partnered with IBM to create a food traceability system based on the Linux Foundation’s Hyperledger Fabric. The result? Now they could trace their mangoes in just 2.2 seconds.
They then used that same technology to trace pork in China and now have blockchain partnerships with several big food companies, including Dole, McCormick, Nestlé, Tyson Foods, and Unilever. As of 2018, it was possible for the company to trace more than 25 food products from as many as five different suppliers.
“The system was so efficient that one could take a jar of a product or a salad box and trace the ingredients back to the farms from where they were harvested,” Walmart claimed.
You may recall that back in 2018 there was an outbreak of E. coli in romaine lettuce from a farm in California that ended up affecting over 17 states. At the time, many stores pulled all of their romaine lettuce off the shelves out of caution because they weren’t able to quickly identify the source.
Before Walmart had implemented some of these new initiatives, it would have taken days to trace the lettuce to the source, but now that they can access that information in a matter of seconds they can ensure that what’s on the shelves is safe.
“For public health and safety, this [blockchain program] obviously creates a lot more confidence in the ability to track and locate if there are any disease outbreaks among farms where it came from once it’s been identified,” said Vestergaard.
Another example Vestergaard highlighted is the diamond company De Beers. One huge problem with the diamond industry is that many diamonds are mined in war zones and then sold to fund military efforts, resulting in the name “blood diamonds.” Historically, it has been hard to trace the origin of diamonds, so you could never tell if you were getting a blood diamond or one harvested more ethically.
In 2022, De Beers introduced its Tracr blockchain platform, which enables tracing of diamonds from their source, as well as all stops in the supply chain.
“De Beers discovers diamonds with our partners in Botswana, Canada, Namibia and South Africa and, with our long-term investment in Tracr, we are proud to join with our Sightholders to provide the industry with immutable diamond source assurance at scale,” said Bruce Cleaver, CEO of De Beers Group. “Tracr, which will enable the provision of provenance information from source to Sightholder to store on a secure blockchain, will underpin confidence in natural diamonds and represents the first step in a technological transformation that will enhance standards and raise expectations of what we are capable of providing to our end clients.”
The environmental impact
One of the big criticisms of blockchain technology is the detrimental impact on the environment. Particularly during the Bitcoin mining craze, people were running their computers to the max and driving up their electric bills. The profit from mining may have paid for the increased electric bill, but what about the environmental impact of that mining?
President Biden even commissioned a report on the environmental impact of “crypto-assets,” which are assets based on DLT. The report, which was published last year, found that from 2018 to 2022 electricity usage from these crypto-assets grew rapidly and in 2022, the published estimates for energy usage ranged from 120 to 240 kilowatt-hours per year. According to the White House, this is more than the total electricity usage for many companies and makes up about 0.4% to 0.9% of total global electricity usage.
The report clarified that most of the environmental impact does come from consensus mechanisms, which are used in mining and verifying assets. The dominant mechanism for energy consumption was Proof of Work (PoW), which at the time of the report was used by both the Bitcoin and Ethereum blockchains.
According to the White House, the PoW mechanism uses a lot of electricity by design. “The PoW mechanism is designed to require more computing power as more entities attempt to validate transactions for coin rewards, and this feature helps disincentivize malicious actors from attacking the network,” the White House wrote in a statement.
However, PoW is just one option, and there are other less energy-intensive DLT technologies and consensus mechanisms out there, such as Proof of Stake. By switching, it is estimated that energy usage could be reduced to less than 1% of today’s current levels.
For example, the Ethereum network has since begun to migrate to a Proof of Stake blockchain and this has reduced its energy consumption by about 99.95%.
The overpromise of blockchain technology
Bennett explained that while there have been some very successful implementations, there’s not a lot of examples of follow-on projects.
“When I see a project is hugely successful, and everybody talks up the benefits — which I do not doubt, by the way, I wouldn’t accuse people of lying about the benefits they’ve achieved — and then nobody else does the same thing,” said Bennett. “That either means that they’re being economical with the truth about how much it costs to run, or how much effort was involved in setting it up. Or that there are some quite unique circumstances associated with a particular company or a particular ecosystem that just lent itself to putting something on a blockchain.”
There have also been a number of bankruptcies with blockchain companies over the past year. For example, the crypto exchange FTX collapsed and the CEO, Sam Bankman-Fried, was arrested on multiple charges, including wire fraud and defrauding investors.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said John Ray, who was brought on to replace Bankman-Fried after the arrest.
This has been a very public failure, but it’s not the only one. Other companies that went under include BlockFi, 3AC, Marco Polo, We.trade, B3i, and TradeLens, an open and neutral supply chain industry platform solution underpinned by blockchain technology.
According to Bennett, one of the main reasons TradeLens shut down was because it was in “an ecosystem that’s dominated by one of the largest shippers in the world around data sharing.”
She continued: “You can see the reluctance of competitors wanting to join that, which reduces the attraction for port operators to join as well. And also, it’s back to how do you want that ecosystem to run? Because TradeLens was always meant to be in some way for profit. And where does that come from? How do you charge for transactions? What do people want to pay? Nobody has really come up with a workable recipe there yet.”
According to Bennett, when hearing about the benefits of any new technology, it’s important to remember that company goals are not really about the technology, it’s about what you want to do. If you have a clear vision, you can work backwards from that end goal.
She sees that a lot of digitization initiatives are becoming co-mingled with blockchain. But a lot of the benefits companies see are from the digitization itself, not putting those digital assets on a blockchain.
“Just for digitizing paper, you don’t need a blockchain, but you still need everybody to accept the digital format of what previously was physical,” said Bennett. “And then if all you do is digitize a PDF file, and then send that around, you save some time clearly because a PDF file is quicker than the mail between Africa and the United States. But they also have a limit to the benefits from digitization too. My message here would be really think about what it takes to digitize before you think about the technology that you use to do it is.”