Blockchain B2B (Back to Basics for Business)

Anna-Lisa Natchev -Blockchainforum.fi

Published on April 3, 2019
Anna-Lisa Natchev
Head of Sales and Marketing at Analyste Oy

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Part 1 – Defining Blockchain

 

I recently took on a volunteer position as the Vice Chairman of the Board for the Finnish Blockchain Forum ry. Our forum is a collective of amazing people striving to build a better future for the deployment of blockchain technology. As a non-profit organization, our mission is to promote open discussions, knowledge increase and use of blockchain and distributed ledger technologies.

We organize events and education among companies, public and third sector organizations and citizens in their roles as users, suppliers or regulators by providing and levering know-how, training, research and user experiences.

 Many people ask me to “explain blockchain” and seem to think that they don’t know enough about the technology itself to be able to assess the potential or even have a conversation about it. I always ask them to think about the internet, do you use any web-based services? Have you looked at a website lately, or an app? Almost everyone answers yes. If I ask the same people to explain the basics of the internet to me most of them can’t. Still, they use it and can describe the benefits that the internet has for them, for their business and humanity. We should try and approach blockchain the same way. When the internet came no one knew quite what to do with it, now we can’t live without it.

 Regardless of your opinions on bitcoin and the bitcoin software that was created as a counterforce against the financial crisis in 2007, you will not be able to avoid blockchain in the upcoming years. This new technology will impact you in some way whether it’s you on an individual level or you as a C-level decision maker.

 Why Blockchain?

  When the internet came, we were able to share information effortlessly. The blockchain “revolution” is essentially allowing digital information to be distributed but NOT copied. Think about this for a second and what it means! If I want to send you a presentation or a picture. I could send the material to you for example in an email. But doing so I will still have the original on my computer or cloud service. Hence, we will have duplicated it. Just sending information works fine if we want to send information via “the internet,” but problems start to arise if I would like to send you 5 dollars or perhaps the original and only copy of a photo that would transfer into your ownership.

 If I would be able to send you the original photo or the 5 dollars that would then be removed from my wallet in the same manner as cash would be removed from my wallet if I gave it to you. Can you see the benefit in that? I think you also voted yes.

 As you can see, we are now changing how we can use the internet when we can start thinking in terms of digital assets that have some of the characteristics of physical assets that you control and own. Instead of sharing information we can now create value by making transactions with these assets and not just copy information. Initially designed for the digital currency Bitcoin, the potential uses for the technology are starting to evolve from direct peer to peer use cases to entire digital ecosystems. By using smart contracts and chain code, we can remove the need for intermediaries as no third party is needed to validate the right to ownership of an asset or if the transaction ever took place or if all the requirements that are necessary to close a contract have indeed taken place and been accepted. More speedless friction has the potential to supercharge things like supply chains, cross border payments, peer to peer transactions for example on the housing market, micropayments based on services rendered and so on.

Money, Cryptocurrency and Enterprise Blockchain

 

 The first wave of Blockchain is still the most known, Bitcoin. The birth of Bitcoin was somewhat of a financial counterculture that was created by a person or a group of persons that called themselves Satoshi Nakamoto back in 2008 as a protest against the global financial meltdown led by institutions such as Lehman Brothers. In October 2008 the bitcoin whitepaper was published in a cryptography mailing list: https://bitcoin.org/bitcoin.pdf. Now cryptocurrencies are perhaps the most debated financial assets in the world. Bitcoin has been declared “dead” multiple times but as time goes by cryptocurrencies have not ceased to exist. Amid this speculation, it also raises an interesting question around what money is or in fact what legal tender is. Legal tender is a currency that must be accepted by law as a settlement mechanism to meet a financial obligation. However not all notes or coins are legal tender, would you accept Venezuelan Bolivar as payment for your services rendered? I think not. So some of the bad press that bitcoin has gotten has been around as long as money and currency. Shortly after paper bills were first introduced in China, they were banned for over 200 years only to be re-introduced as the new standard. Also, the EU commission has started to think about what money is. Regardless of the philosophy, cryptocurrency and especially bitcoin is starting to smooth out and remove friction in a steadily growing rate of transactions both peer to peer and settlement needs.

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 Enterprise use of blockchain has somewhat diluted the original manifests vision of bitcoin, but as the different networks evolve, they are offering possibilities for companies to decrease friction and increasing transparency in business interactions.

 To grasp the reasons that you should care at some level about blockchain and start thinking about its potential benefit, it could be worth taking a very short and shallow dive into the technology itself beginning with the very famous Bitcoin.

Bitcoin basics for businesspeople

 

 Bitcoin and Ether are the more known cryptocurrencies that are assets that exist digitally so let’s take a look at them by making a shallow dive into the idea of the blockchain. They are created by software. There is no central authority as such, that is issuing them or giving any guarantees or terms of service. They are designed and destroyed based on rules. They are digital assets and just like the physical coin in your actual wallet; you own this asset. When these assets are transferred from one account to another these transactions are registered and recorded on their respective databases as blockchains. Bitcoin and Ethereum blockchains are so-called public blockchains.

 The blockchains have a set of rules that make up protocols. The protocols determine what the requirements are for a valid transaction and how they are recorded. These protocols are written in code that can be made into software code. When the Bitcoin software is running, it is creating Bitcoin that can be used for transactions. These transactions are recorded as transaction data and are bundled into bundles or blocks that are linked together to form the Bitcoin blockchain. Those blocks are also sealed with immutable code that makes it virtually impossible to change its content. We have an immutable trail of transactions, as each party or so-called node in the network have the same data. The data can be traced back to the first block. We have built-in trust and transparency.

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 We essentially talked about allowing digital information to be distributed but NOT copied in the “Why” Blockchain section. What we are looking for is a solution to the problem of Double Spending: the successful use of the same funds twice. Double- spending of Bitcoin is impossible as Bitcoin is protected against the problem. This is thanks to the fact that each transaction that is added to the blockchain is verified and the majority of funds contained in this transaction cannot have been previously spent.

Enterprise blockchain

 While the original vision of the counterforce that Bitcoin represented against the corrupt financial system has somewhat toned down, the emergence of private “closed” blockchain networks has opened up a whole new world for businesses because of their capabilities to create value thus creating ecosystems.

 Companies are identifying steps in workflows and interactions with suppliers and customers that can benefit from removing friction and increased transparency and that is creating new types and forms of enterprise blockchains. They are enabling new business models utilizing preassembled blockchain platforms, especially where business networks are complex and costly to oversee and orchestrate. Startups and participants in systems can then join these platforms taking on roles such as suppliers or even representatives of the regulative authorities such as the tax agency or border control. Combining this with traditional workflows they can increase efficiency and transparency which brings on lower costs for transactions and complex dependencies on critical information for example of ownership, origin and real-time transaction status.  

One of the most significant application areas for blockchain will probably be automating processes. A process is a series of steps and actions that are performed to reach a specific outcome. Enterprises work with a set of processes that require resources both in terms of work hours from employees and even external expertise such as lawyers and outsourcing partners. Let’s introduce smart contracts. Smart contracts are a complex set of software codes that are designed to automate execution and settlement. They hence automate transactions in a pre-programmed automated way and combined with AI and Robotics; we will see substantial autonomous ecosystems arising within the upcoming years.

 Enterprise blockchain use cases are increasing in a rapid speed, and we see cooperations with first generation blockchains such as Ethereum and Hyperledger. Businesses are thinking about how to incorporate blockchain technology in their traditional IT frameworks. Without the intention of creating confusion some of the solutions are called blockchain but are DLT:s that opens up possibilities for running more specific workflows. In B2B interactions the participants have different roles, and it could be unwise to showcase sensitive information to all parties. However, the marketing name of the solution providers is most often simplified as blockchain.

The C-level is awakening

 We are seeing more and more business applications turning fully or partially into decentralized applications. One of the tasks that we have in the Blockchain Forum Finland is to gather and share the best use cases for support in C-level decision making on an international level. All workflows or processes are not suitable for blockchain, at least not yet and there is no point in trying to force this technology into your business strategy. Unarguably we have traditional systems and solutions that can perform the tasks and come up with the same result that we can achieve with blockchain.

 The next step in the B2B series will be looking at actual use cases of blockchain technology and distributed ledger technology and most importantly why they are good use cases for blockchain. Stay tuned!