While a number of enterprising investors have earned fortunes from cryptocurrency investments, it is ironic that, for all the talk of blockchain reshaping the economy and driving digital transformation throughout sectors ranging from health care to supply chain to manufacturing, there aren’t more companies making money from it. The digital-transformation potential of blockchain may be considerable, but the technology is still at an early adoption phase. Recent Gartner research states that 1 percent of the chief information officers they surveyed indicate they have adopted blockchain. Another 8 percent were either planning blockchain projects or in the proof-of-concept stage. And yet, tech behemoths including Amazon, HPE, IBM, Microsoft and SAP, are investing heavily in enterprise-grade blockchain technology, hoping to make the technology a mainstream option for everything from smart contracts to supply-chain traceability.
To get a clearer sense of what is so attractive about the technology, we caught up with Raphael Davison, Hewlett Packard Enterprise’s worldwide director of blockchain at HPE Discover. In the following interview, Davison explains the advantages blockchain has over traditional technologies such as databases and HPE’s concept of Blockchain 1.0, 2.0 and 3.0 (the latter of which leverages additional technologies like IoT, Big Data and AI.)
Blockchain is getting a lot of attention for supply chain applications. Could you provide an example of its benefits in this domain?
Davison: Let’s say you’re tracking an aviation supply chain. A part in an aircraft is manufactured in China; it gets put on a ship, then another ship, then it goes on a truck and eventually is assembled onto an airplane.
You could track this part as an entry in a database. But the advantage blockchain offers is that it creates a record in a block that can never be changed. It’s immutable. And it’s instantly synchronized to every other ledger in the entire ecosystem.
Let’s say you set up an ecosystem of parts manufacturers, distributors, airlines and airline manufacturers. People in the airline industry look at a jet and see it as a million parts flying in formation. Blockchain could enable you to track those million parts across the ecosystem throughout their entire life span. You also could have a digital twin of that jet in a blockchain where each part has its own ledger. You can see its history, how many times it was maintained, etc.
That would be very difficult for all those entities to get together and build a gigantic ecosystem with existing technology. And it gets even more difficult as you start adding more entities.
Instead, blockchain, by its very nature, encourages ecosystems. It’s a distributed peer-to-peer network. No single entity owns it. And because information is stored in these immutable blocks, we can trust that information. Unlike a database, we can’t go in and change a date. In blockchain, every block is cryptographically hashed. If you change just one pixel in a photograph stored in the blockchain, the protocol will recognize that and your [modified] ledger will be immediately eliminated. I can trust what's in the blockchain because I know all the hashes match across the blockchain network. If anything is modified in any way, it will be left off. In these kinds of scenarios, blockchain technology has huge potential versus existing technology.
When do you think the advantages of blockchain are most evident for enterprise and when does it not make sense to deploy?
Davison: When you have an ecosystem of multiple parties that don't necessarily trust each other that needs a common set of facts. Think about that airline example where all these different entities would love to be able to look at a digital twin of a jet.
But the point is, you wouldn’t use blockchain really [for a limited use case] unless you’re just doing a science experiment by yourself. You need an ecosystem; you need a group of different parties to come together.
Why do you think the financial services sector is making more progress with blockchain than other industries?
Davison: The financial services field already has existing protocols to work together and financial service companies have existing problems digital ledger technology can address.
Look at syndicated loans. Banks can get together a syndicated loan when a customer wants to borrow so much money that no single bank can loan the full amount. But a group of, say, banks could come together to provide one-fifth of that amount. The banks that come together have to trust-but-verify each of the other banks. Imagine all of these banks had access to the same distributed ledger technology. As soon as I make an entry, it gets synchronized across the network. Contrast that approach with five banks maintaining five spreadsheets. If there is a problem with one, I have to pick up the phone and say: ‘You know, my third entry doesn’t line up with yours.’ With blockchain, I don't have to do that anymore. It's synchronized. Everything's cool. That's why the biggest number of blockchain POCs have been in financial services.
But this type of collaboration is tougher in industries like transportation and health care. They don't have the same culture of working together. There's a lot of cultural issues kind of preventing adoption.
What is blockchain 1.0, 2.0 and 3.0?
Davison: HPE had to look at the entire evolution and use cases that are out there to help us figure out where we focus. So we came up with a structure where we say blockchain 1.0 to describe the world of cryptocurrency — people transacting with people.
We focus on blockchain for the enterprise, which is blockchain, 2.0 and 3.0. Blockchain 2.0 is enterprises transacting with enterprises. Those enterprises live in a world of geography, laws, regulation and they need transaction privacy.
Blockchain 3.0 is the intersection of blockchain, IoT, AI and data to enable smart contracts and distributed apps.
What are your thoughts on leveraging blockchain in IoT?
Davison: Blockchain at its most fundamental nature establishes trust in a single set of facts for members of that ecosystem. For IoT, it allows me to trust information that’s coming from the edge. And that thing out on the edge will trust what’s being sent to it.
Here’s an example of this in action: We took one of these iRobots that vacuum the floor and gave it an identity and its own digital wallet. Let’s say, you have a bunch of roommates in an apartment. You can set up smart contracts to say: ‘OK, I agree to have the robot vacuum floor in my room every Tuesday and Thursday and yours every Wednesday and Friday.’ In this example, the roommates set up the smart contract that enables the robot to take cryptocurrency from you each time it vacuums your floor. And when its battery is running low, it will use the contract it has with the electric company to use some of the cryptocurrency it gathered to pay for the electricity it needs to recharge. Blockchain allowed this whole thing to happen all on its own. It shows how you can use blockchain in IoT in an application with devices that have their own identities and wallets. Identity, it isn’t just for you and me, it’s for things.