The internet ushered in a new era in the global exchange of information, making it far easier for everyone, regardless of where they are in the world, to transact and do business. The question became, how do we close the trust gap? The answer: blockchain.
Because of its immutability, blockchain holds the promise of verifying that no party to any transaction can misrepresent itself to the other. As such, the question of whether blockchain can disrupt our traditional financial system is no longer the one we should be asking. Now it’s a matter of to what extent – especially if we consider that the IDC predicts that by 2022, worldwide spending on blockchain solutions will reach $11.7 billion and the global blockchain technology market is estimated to generate $20 billion in revenue by 2024. Moreover, according to Gartner, blockchain only comes second to artificial intelligence and machine learning as the most disruptive technologies in recent times, having found usefulness in almost every sector where it has been applied.
Cryptocurrencies are often cited as the most popular form of blockchain implementation, but let’s look beyond that to see how and where else it’s being used.
Chris Becker, blockchain technologies lead at Investec Bank, says: “Disruptive as it is, the technology itself may remain largely invisible to those who use and benefit from the new technologies, but there’s little doubt blockchain seems likely to become the invisible spark behind a host of services that will one day be as indispensable as email or online news.”
Yaliwe Soko, chairperson, United Africa Blockchain Association and Ecosystem Lead for cLabs/Celo, SA, says there has been some progress from different organisations in SA, ranging from payment solutions, social good, cash-in and cash-out solutions and educational programmes. “Some noteworthy examples include Blockmesh, a platform connecting people to the blockchain through basic utility services, behavioural incentives and transactional (trade) capabilities; Valr Exchange, a digital asset platform that allows customers to buy, sell, store and transfer cryptocurrencies seamlessly and securely, ZLTO, a platform that uses blockchain technology to increase engagement among youth, track positive behaviour via live dashboards and encourage certain behaviour through innovative rewards systems; and Sun Exchange, the world’s first peer-to-peer solar leasing platform. Through Sun Exchange, anyone, anywhere in the world, can own solar energy-producing cells.”
A complex technology
SA is seeing slow growth of blockchain adoption beyond cryptocurrencies, adds Andrea Tucker, business applications head at fintech specialist e4. “Most of the local applications of blockchain tech are in the crypto space and there is significant energy and enthusiasm for the technology in these circles. Blockchain is a complex technology, but when applied, can disrupt many aspects of business and government processes and structures for the benefit of our economy and members of society.”
Blockchain is bringing about efficiency, transparency, cost reduction and accountability to local businesses, adds Soko.
Blockchain is set to affect all businesses that manage a variety of types of customer data by facilitating a shift from storing data in private databases and servers, to storing it in public ones. “We haven’t yet scratched the surface of how it will impact business models in the future, but when considering the power of globally interoperable public databases, coupled with smart contracts to encode business logic into these databases, large changes are likely in the future,” says Becker.
Companies that have built themselves on the basis of the tech – like cryptos – are only as good as those fundamental principles, and their very existence is brought into question when one of those principles is broken.
Andrea Tucker,e4
As with all disruptive technologies, blockchain isn’t without its challenges, says Tucker, particularly lack of government participation in, and knowledge and support of, the technology limiting the regulation of applications thereof. “The lack of regulation is responsible for low adoption of the technology at an industry level, despite companies creating use-cases. Corruption and fraud are also causing high levels of mistrust, which isn’t specific to SA, but something we’ve seen too much of in the last decade – severe mistrust of government institutions and those in power due to abject corruption. This has resulted in mistrust of government bodies trying to regulate the industry, despite the definition of the technology meaning that transactions on the block are transparent and traceable and it significantly reduces the opportunities for fraud and corruption if scoped and implemented correctly.”
Financial inclusion
The industries seen as leaders in blockchain in SA are first and foremost within financial services, saysShadrack Kubyane, co-founder, Coronet Blockchain. “There are increasing cyber threats to local firms, banks, insurers, every type of entity, and government. Blockchain as a framework to rethink these infrastructures, and futureproof them, has never seen as great a need as now. Beyond blockchain-powered security, there’s another reality as to why blockchain is taking centre stage in trade across financial services. That need is financial inclusion. SA is home to 4.2 million migrants. The Sustainable Development Goals framework has prioritised lowering the cost of sending money home, for migrant labourers across the world, to bring it below 3%. Such a bold ask is not attainable sustainably without using blockchain as a key ingredient, and a number of firms are stepping up to solve that. Other adjacent implementations of blockchain in finance include insurance and rethinking stokvels.
Beyond finance, the supply chain sector is a priority disruption area for blockchain. Between now and 2030, we will see significant traction across various supply chains, environmental, social and corporate governance, and agriculture. It’s a given that these sectors are facing regulatory shifts and broader client expectations for overdue realignments. The positive spin-offs are clear – implementing blockchain inputs to bring needed transparencies, efficiencies and trust mechanisms on a next tier will create and formalise jobs.
Tucker cites an example of a successful implementation of blockchain in the diamond industry. “De Beers is using blockchain, paired with other technologies, to trace and authenticate the movement and transfer of natural diamonds through the creation of a digital asset representing the physical asset. This instance of the use of a blockchain platform works because De Beers had a pressing requirement to verify authenticity of a physical asset, there was a need for multiple parties to update and share data, and because transactions depend on each other through the value chain.”
When it comes to building the business case for blockchain, Soko says it needs to be solution-based. “The problem (to be solved) should be one that often requires a database and involves transactions and should support P2P.”
Building a use case
Tucker says most of the blockchain projects within local organisations are in pilot phase to prove the business case that blockchain has a true and meaningful use based on the main selling points of the tech itself: it’s secure, tamperproof, and transparent. “Companies that have built themselves on the basis of the tech – like cryptos – are only as good as those fundamental principles, and their very existence is brought into question when one of those principles is broken.”
For Kubyane, there are three phases to building a successful blockchain use case. Firstly, due diligence and design thinking, which enables innovators to fully grasp and appreciate the macro and micro dynamics involved pertaining to the pain points they intend to solve. Every hand that touches the item being ‘solved’ around will have its own expectations, which must be recognised and represented in the solutioning. Bear in mind that blockchain requires an ecosystem of stakeholders. Getting all members to participate means the solution must offer real value beyond technical features. Next, he says, is the technical build. “Blockchain is usually an added layer to an existing tech stack. With an experienced technical team or a technical partner, this stage should not take too long as your energies by now should be centred on building what your design thinking process has mapped out. Resist the temptation to expand or amend the scope, or you will find yourself walking into brick walls and encountering scope creep on your own project.”
In the same way that banks were concerned about exposing client data and information on the internet through online banking services in the late 1990s, many people still don’t trust that public blockchains are safe and secure.
Chris Becker, Investec Bank
Third, he says, is go-to-market. “Both design thinking and technical build will impact your go-to-market strategy significantly. Ideally, you want to prioritise and gain social proof of your technology from the onset, by ensuring it solves real-life problems. Build your solution, with the market, for the market. This approach will save you a headache and lots of money in the process.”
No silver bullet
As much as blockchain is a buzzword and everyone wants to have a blockchain solution, it’s certainly not the most sensible route for every business problem an organisation wants to solve, says Tucker. “There may be simpler solutions for challenges an organisation is facing. The technology itself is still at an immature stage where there is no clear recipe for success, meaning that no implementation will see guaranteed success. Any organisation looking at investing in blockchain must ensure that it has a knowledgeable team of experts to call on to dispel misconceptions about blockchain and its value. Understanding the myths and true benefits could save a company from going down a costly path to implement a blockchain solution that could have, instead, been a simpler and more secure database, for example.”
Lack of education and skills is the greatest barrier, adds Soko. “Organisations like the United Africa Blockchain Association are doing important work when it comes to combating this lack of education, by offering free workshops, webinars and trainings. People often don’t understand the difference between blockchain and cryptocurrencies. In addition, scams has created fear in people. Regulatory uncertainty has also contributed to slow adoption.”
Becker believes the largest barrier is trust and legitimacy, which takes many years to develop. “In the same way that banks were concerned about exposing client data and information on the internet through online banking services in the late 1990s, many people still don’t trust that public blockchains are safe and secure. This perception will only be solved over time if blockchains continue to function as well and with as little downtime as they currently do. A second, but less important, barrier to adoption is the scalability of blockchains that would not cope with the traffic today if billions of people were to suddenly start using it. This will also be solved over time with technological upgrades: in the case of Bitcoin with layer two scaling, and in the case of Ethereum with proof of stake consensus model, shared chains, and layer two scaling. We are still very early in the blockchain revolution.”
So what’s needed for blockchain success?
Says Tucker: “Within an industry looking to optimise and digitalise a process, the following needs to be in place in order to improve chances of a successful implementation: an upfront need for information-sharing and collaboration between the parties and stakeholders; an industry body that places a set of standards on a process to allow for collective consensus; thought put into how an implementation can be quickly and easily scaled; and a view on how a new instance of new technology can integrate into legacy systems.”
“We have always believed blockchain is more than a technology,” says Kubyane. “Blockchain is a collaborative ecosystem that enables a community of various stakeholders to co-create the future they want. A strong stakeholder buy-in, at various tiers, is very important for blockchain adoption and stickability. When you’re clear on the tangible value your blockchain solution will have for stakeholders, in terms of costs, efficiencies, compliance, access to big ticket revenue markets, it lessens push-back.”
Predictions 2021: Blockchain is a tale of two speeds
Globally, 30% of projects will make it into production.
This number doesn’t just reflect the more realistic approach to projects that we noted and the increasing maturity of the technology, but also the pandemic-induced acceleration and initiation of projects that bring measurable benefit within a short timescale. The majority of networks that transition from pilot to production will run on enterprise blockchain platforms.
Permissioned blockchains will remain the order of the day.
While many enterprise technology leaders have become increasingly open to exploring the role that public blockchains could have in an enterprise context in the long term, recent headlines generated by decentralised finance (DeFi) have put the lid back on the discussion. The reassociation of public blockchains with the more ‘Wild West’ aspects of crypto assets is scaring away compliance- and risk-aware business leaders, making it difficult for even the most ardent supporters on the tech side to maintain or pick up the topic.
China will make the fastest progress.
China’s ‘new infrastructure’ national initiative makes blockchain an integral part of the country’s digital infrastructure. In 2021, the Chinese government will make investments in most provinces across all verticals, and we’ll see a steady stream of systems going into production. China’s ambitions to provide a global public infrastructure via its global Blockchain Service Network won’t advance far in the current geopolitical climate. The European Blockchain Services Infrastructure (EBSI) is equally bold in its mission. Convoluted procurement processes and conflicting interests, however, mean that EBSI will see some incremental progress in the form of pilot projects but no major breakthroughs.
* This feature was first published in the November edition of ITWeb's Brainstorm magazine.
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