Becoming an enterprise solution
For the general public, blockchain might be synonymous with Bitcoin. But for businesses and government, blockchain development has quietly marched to open up an expanding range of applications. One developer network for Ethereum, a public blockchain that allows for instantly executable smart contracts, has over 10,000 nodes in more than 40 countries. It’s this sort of network effect that Brody believes will push the trough of disillusionment through to the “slope of productivity”. That happens when novel technologies have become commonplace enough that people start seeing their benefit in solving real problems, not just ideas traditionally relegated to the realm of science fiction.
“We are very close to being there today, where blockchain solutions can handle private transactions and business enterprise procurement.” This effectively opens up blockchain to a wide number of use cases, where multiple parties will be able to transact across multiple platforms. The big difference now is that it can be done in private, essentially meaning only the proof of the transaction is public, not the details. As an example, smart contracts on the blockchain could upend traditional notions of car ownership. Imagine you buy an EV that is in turn linked to the grid. A power company might retain the rights to your battery so they can connect it to a series of other EV batteries, operating it as a generation or storage asset as needed. The car owner, in turn, gets paid for the use of that battery. The car could also be contracted by a ride-sharing company, allowing the owner to lease it when the car sits idle. It’s a relatively simple example of automated fractionalised ownership enabled by blockchain, with real-time analytics and full financial transparency.
For governments, which are highly decentralised and often without efficient means of knowing how they are spending their money, blockchain can help quickly and transparently answer questions of what funding is being spent on, how and when is it being spent, and what outcomes are being achieved. EY teams have helped The City of Toronto develop a blockchain proof-of-concept for its Fleet Services, aiming to streamline some of the 850,000 transactions related to the city’s vehicles.
Solving network problems
For private enterprises, Brody believes that the most affected industries will be those that have large sets of business relationships with networks of suppliers. “For Australia, those will be export industries such as agriculture and mining, and manufacturing industries. These are business that are driven by complex relationship across many layers of suppliers. We'll also eventually see an enormous impact in financial services.”
In the agribusiness sector, for example, producers of Australia’s extensive $14.6 billion meat product exports are able to control what happens during the food production process on their farms or as part of on-shore processing. However, as those goods leave Australian shores and are processed by importers, distributed to wholesale markets and finally ending up in retail environments, the control of quality and brand are lost by Australian producers.
Blockchain allows the producer to effectively certify their products as they pass through the entire supply chain. “It is on brands and industries to take a proactive stance to ‘prove’ and ‘protect’ the attributes of their products,” says Waller. “Technology exists that allows tamper-proof unique identifiers to be placed on packaging or into the DNA of produce, that can be tied back to a record on a blockchain that vouches for a product’s authenticity and confirms its supply chain. The burden of proof is going to be placed on the producer to protect their products and to provide consumers increased confidence in their purchase.”
It is on brands and industries to take a proactive stance to ‘prove’ and ‘protect’ the attributes of their products
Providing end-to-end assurance using blockchain is another key feature of coming blockchain solutions, especially for businesses requiring full traceability: How do I know where the wool come from? How do I know the meat was farmed sustainably? If I'm buying coal with carbon offsets, how do I know where the offsets are coming from?
“I often get asked,” says Waller, “‘How do I know whether what’s on the blockchain is correct? What is stopping people making false claims and then just putting it on the blockchain.’ The answer I give is that in general within business relationships suppliers are motivated at maintaining and growing that relationship, not ripping their business partner off. However, unless you independently verify the claims and perform your own reconciliations you don’t know. That’s where improving the quality of the data input comes in.
“If, for example, you have information fed from a sensor on a weigh-bridge confirming the weight of a cargo, that is likely to be more trusted than a manual input. The input also has attributes such as location and time of day that go along with it, which, when added to other supply chain information further increases the trust in the cargo’s origins and path it has followed. The more digitised you can make the steps on the supply chain, the more friction you can remove from verification steps and reconciliation.”
However, not every input can be as simply verified. Supply chain claims related to sustainability, carbon footprints or compliance with modern slavery are often very difficult to fully ascertain on in-bound supply chains. “Take for instance batteries used in consumer goods in department stores,” says Waller, “How do we know that child labour was not used somewhere along the supply chain? As you break down the supply chain, you may be able to get as far back as the assembly of the goods in China, or the manufacture of the individual component parts in Taiwan, but are you able to reach back to the raw materials that came out of a mine on another continent, passing through shipping ports in yet another part of the world? This compliance is what global brands are demanding from component manufacturers.
“I expect that traditional audits and verifications performed in locations where materials are sourced and processed will be combined in open distributed ledgers,” says Waller, “Those ledgers will be able to be mined and analysed to confirm the likelihood of violations with protocols, not as a definitive yes/no but as a risk rating. It means companies can build up a likelihood of compliance based on known regions, cities, local operators who have chequered results.”
The key, however, is not just the technological solution. It’s making it easy for the buyer to track the history of the product, to understand the origin. “EY teams have a particular advantage as an audit organisation that also has dedicated blockchain solutions,” says Brody, “because we can not only put the traceability data on the blockchain, we can help provide external independent verification of the data’s accuracy.”
JUST WHAT IS BLOCKCHAIN? AND HOW DOES IT HELP IN PRACTICE?
Blockchain is a distributed database and network that maintains a ledger of transactions. The technology has a number of key features:
- Secure: Data cannot be changed once it is committed to the system
- Efficient: Leverages existing systems and resources
- Open: Open sourced and transparent
- Scalable: Designed to scale to institutional demands
- Synchronized: All activity on a distributed ledger automatically reflected across the network
- Smart: Potential for autonomous execution of functions based on predefined conditions
It means the blockchain is perfect for transforming a number of enterprise challenges:
- Digitising procurement processes
- Creating efficient open networks and marketplaces
- Upholding claims of provenance and sustainability
- In-bound supply chain and asset management
- Management of warranty claims in asset intensive industries
- Efficient reconciliation and auditing processes
- Enabling more transparency in the allocation and management of public sector budget and finance management
Blockchain can be used to help stimulate the economy after the negative effects of COVID-19. EY teams are readying a product to assist employers, governments, airlines and others use blockchain to track the results of people who have had COVID testing and could be immune to the virus.