Imagine a huge vault from a bank. The vault is filled with rows of unlabeled deposit boxes. However, each deposit box has a glass facade, allowing everyone to visualize the contents of the deposit box, but does not access it.
When a person opens a new deposit box, it receives a key that is unique to that box. Making a copy of the key does not duplicate the contents of the box. And in the same way, even though you have the key, the box is not technically yours. You only have the ability to access what’s inside of it.
This analogy is perfect to describe basically data stores on the blockchain, and how you deal with it, and it was first proposed by Fabricio Santos of Cointelegraph. To sum it up, blockchain technology is like a series of glass boxes with content everyone can see, verify and can’t change. Everyone knows where the boxes are and what they contain.
This is a great way to understand the Blockchain, which is definitely a transformative Web3 technology, but whose practical applications on traditional businesses are not very easily understood. This is why we are dedicating this article to better understand how Blockchain can help your traditional business, and how we can better identify its applications.
Highland Foods, a Korean food company that specializes in the sourcing, import, and distribution of meat to various retailers across the country, had a problem: the lack of visibility of their cargo. This is a common problem for importers, as they often have little to no visibility on shipments until the vessel arrives at a port. However, unforeseen changes to transport plans can cause delays, making it challenging to prioritise and reroute other shipments. Additionally, as they deal primarily in perishable items, Highland Foods had to arrange for the immediate transportation of their cargo as soon as the shipments landed in Korea.
Managing these unpredictable changes led to a lot of time and effort being diverted away from their core business. They needed a solution that could provide them with greater end-to-end visibility and help them manage their supply chain more efficiently. That’s when TradeLens comes into play: Tradelens is a blockchain-based platform developed jointly by IBM and Maersk, supported by major players across the global shipping industry, comprising shippers, freight forwarders, ports and terminals, ocean carriers, intermodal operators, government authorities, customs brokers and more. Each entity shares information that can be tracked, stored and actioned across the platform throughout a shipment’s journey. The TradeLens Platform is accessible via an open API and brings the ecosystem together through a set of open standards. Powered by Hyperledger Fabric blockchain technology and IBM Cloud, the platform enables the industry to share transportation documentation and collaborate securely. The result for Highlands Foods? Sunghub Song, Team Leader, Information Planning Team Highland Foods Co. Ltd, said that “ Through the TradeLens API integration, we are able to perform auto data synchronization into our EDI system 3 times a day, which enables more effective inventory management. We are also able to plan our warehouse schedule at the bonded area better, via real-time ETA updates and notifications to the task owners” .
It is pretty clear now that thanks to its transparency and real-time updates, blockchain can help solve the problem of access to reliable real-time information shared on a decentralized network.
With that in mind, let’s better understand the potential use cases for Blockchain, which we can separate in 2 big groups, and 6 sub applications:
When it comes to blockchain, even though the financial sector accounts for more than 30% of the complete market value of the technology (a market value that is poised to reach $ 67.4 billions by 2026, according to Markets and Markets), the value of the ecosystem has also begun to spread to other technologies, such as manufacturing (17.6%), distribution and services, (14.6%) and the public sector (4.2%).
In these sectors, when we look at the short-term impact of Blockchain, we see that although Blockchain might have the disruptive potential to be the basis of new operating models, its initial impact will be to drive operational efficiencies. Cost can be taken out of existing processes by removing intermediaries or the administrative effort of record keeping and transaction reconciliation. This can shift the flow of value by capturing lost revenues and creating new revenues for blockchain-service providers. Based on McKinsey’s quantification of the monetary impact of the more than 90 use cases analyzed, they estimated estimate approximately 70 percent of the value at stake in the short term is in cost reduction, followed by revenue generation and capital relief.
Certain industries’ fundamental functions are inherently more suited to blockchain solutions, with the following sectors capturing the greatest value: financial services, government, and healthcare. Financial services’ core functions of verifying and transferring financial information and assets very closely align with blockchain’s core transformative impact. Major current pain points, particularly in cross-border payments and trade finance, can be solved by blockchain-based solutions, which reduce the number of necessary intermediaries and are geographically agnostic. Further savings can be realized in capital markets post-trade settlement and in regulatory reporting. These value opportunities are reflected in the fact that approximately 90 percent of major Australian, European, and North American banks are already experimenting or investing in blockchain.
The strategic value of blockchain will only be realized if commercially viable solutions can be deployed at scale. Our analysis evaluated each of the more than 90 potential use cases against the four key factors that determine a use case’s feasibility in a given industry: standards and regulations, technology, asset, and ecosystem (Exhibit 5). While many companies are already experimenting, meaningful scale remains three to five years away for several key reasons. First of all, lack of common standards; second is that the technology must prove to be more feasible; then, the fact that many physical assets must be digitized in order to provide data in the blockchain; and the last but not least is the need for “critical mass”, in the sense that Blockchain’s major advantage is the network effect, but while the potential benefits increase with the size of the network, so does the coordination complexity. For example, a blockchain solution for digital media, licenses, and royalty payments would require a massive amount of coordination across the various producers and consumers of digital content.
Natural competitors need to cooperate, and it is resolving this coopetition paradox that is proving the hardest element to solve in the path to adoption at scale. The issue is not identifying the network—or even getting initial buy-in—but agreeing on the governance decisions around how the system, data, and investment will be led and managed. Overcoming this issue often requires a sponsor, such as a regulator or industry body, to take the lead. Furthermore, it is essential that the strategic incentives of the players are aligned, a task that can be particularly difficult in highly fragmented markets.
I want you to think about this as an exercise.