The ability of BlockChain to protect and carry out any type of transaction in an immutable, accessible, traceable and secure way, and its potential to optimize all transactions in the value chain, has been delayed by it slow adoption mainly due to its association with the cryptocurrencies.
BlockChain is an independent technology that emerged in 2009, with the limited function to protect cryptocurrencies and that has surprisingly evolved to be applied to any kind of transaction in any industry. BlockChain is a disruptive technology, with the potential to completely transform all digital transactions as well as contract execution and management.
It is also a fast-advancing technology, capable of offering enormous improvement in security, transparency, quality, reliability in any kind of transactions. BlockChain brings this increased security and transparency at a time when more is needed, now that other Key Technologies are allowing more complex transactions and making possible an increased cooperation among organizations and corporations.
BLOCKCHAIN DESCRIPTION AND COMPONENTS
Distributed Ledger
BlockChain is based on Distributed Ledger Technology (D.L.T.) with online, public and decentralised ledgers which record and share all transactions carried out. Unlike traditional databases, this record is synchronised between all and each of the parties participating. Everything is simultaneously registered in each of the ledgers and by each party, so that all participants share the same information.
Cryptography and Peer-to Peer Network Protocols
BlockChain also offers a suitable balance between security and transparency and provides a fundamental characteristic to fight against fraud: it allows for the addition of new information, but makes it impossible to undo or rewrite that which is already registered. This is achieved by cryptographic keys that serve as digital identities among transacting partners, plus a distributed peer-to-peer network, managed by a network protocol agreed to by all parties and that directly manages each of the decentralised ledgers without possibility of alteration.
Smart Contracts
The so-called Smart Contracts are software programs that collect the terms of a contract between the parties and that are stored in the BlockChain, with the peculiarity that they are self-executing when a series of conditions specified in the contract itself are met. In this way intermediaries are avoided, reducing costs and bureaucratic delays, and providing greater visibility and confidence. Additionally, this is an Open Source technology and allows for all parties in a transaction or workflow to see the same information at the same time, including regulators.
BLOCKCHAIN ADOPTION
Considering its benefits, proven reliability and relative technological simplicity, BlockChain technology still has not jumped to a broad use. Analysists coincide to signal that it is its cryptocurrency origins that generates distrust among enterprises.
A second barrier is the fact that Block Chain’s largest service providers, although highly reputable such as IBM or Microsoft, still do not offer compliant standards, creating a strategic dependency on a single vendor that many companies and administrations consider unacceptable.
The completive standard conflict among providers doubly affects the adoption of BlockChain, because it also reduces the Network Economies offered by this technology. Network Economies are generated when a linear increase in the number of users triggers an exponential increase in the value of its use, as happens with BlockChain. Therefore, competitive and incompatible standards exponentially reduce the value of using them, as it places users on separate networks or simply discourages them from using any of them.
As the greatest barriers to adoption are the result of competitive conflicts between providers and therefore self-imposed, analysts consider likely the consolidation of standards in the short-term, and that once standards are established an enormous growth in use and value generation is expected.
CETMO Analysis, adapted from McKinsey & Company (3)
The main providers of Digital Platforms and technology services have already made significant investments to offer BlockChain services. IBM, Microsoft and Accenture concentrated 68% of BlockChain service sales already in 2018. (1)
Additionally, the major providers of Cloud Computing and Platforms such as Amazon, Microsoft and IBM, offer BlockChain as part of their platforms since 2019.
BlockChain services over the cloud are estimated to be a potential market of $ 420.5 billion and is expected to grow to $ 982.8 billion by 2025 (2). One peculiarity is that its greatest growth is occurring in Asian countries.
BLOCKCHAIN USES AND EFFECTS
A downright effect of BlockChain adoption is the reduction of transaction costs, as financial institutions and other third parties that establish credibility are not required, as well as the elimination of payment delays.
Applications of BlockChain are being explored by administrations of Australia, EU, Korea and USA are exploring, in the areas of identity management, data portability and voting systems. Due to its inherent transparency, it also has a powerful role in facilitating the growth of the Sharing Economy, acting as a unifying element of these emerging economic ecosystems.
Regarding its application in Developing Countries, Platforms with BlockChain provide contractual, transactional and financial digital infrastructure without requiring a previous banking or financial institutions base, thus facilitating all kinds of economic transactions and economic growth.
References:
- Bloomberg, Kharif, BlockChain once seen as a corporate cure-all suffers slowdown, 2018. link
- Business Wire, BlockChain-as-a-Service (BaaS) Market Outlook to 2025: Growth, Trends, Companies, 2020. link
- McKinsey & Company. Ashutosh, Hastings, Murnane, Neuhaus, Automation in Logistics: Big Opportunity, Bigger Uncertainty, 2019. link
BLOCKCHAIN EFFECTS ON TRANSPORT
BlockChain enables a more exhaustive control of all stages of transport among different agents, which gives total security and confidence between the different agents involved in the logistics chain. This allows for broad alliances among companies and an increase in the quality of services. Regarding Passenger Transport, BlockChain facilitates a more open market – decentralised, multimodal and multi-provider mobility that increases user’s benefits. It also opens the door to new ways of conducting business and facilitating transactions in situations that were previously impossible.
Freight Transport
Enhanced Transparency and Cooperation: BlockChain technology information throughout the value chain is transmitted and shared among all actors faster and in a 100% reliable and impossible to manipulate way. Errors along the supply chain can be detected more clearly and bad practices, or lack of quality, become transparent to the customer and to the provider, and so can be addressed.
This increase in transparency among value chain actors, and its derived trust, will allow for enhanced planning and the offering of integrated services and networked services, which are also multimodal and accountable to agents in a dynamic way.
More Accurate Demand Forecasts as information between suppliers and producer’s flows in real time, and is more fluid and connected. Thus, transport companies that in commercial, legal and administrative terms, are totally separated from each other and their customers can, in practice, analyse and plan as if their activity was connected and act as a single company department.
Faster and Audited Payments, as there are fewer intermediaries and all transactions are simplified and transparent reducing billing errors and quick diagnosis, both when and why it happens.
Smart Contracts: Allow for Near Automated Agreements: Smart Contracts allow the settings, triggers and execution of pre-planned supply orders and transportation services under conditions outlined in pre-set agreements between the parties involved. For example, when a product is above a quantity in stock, or an order has just been closed with a supplier or customer.
Tail Wave Effect Elimination: end customers have truthful and reliable information about what is happening in real time, without depending on providers or third parties. Therefore, users throughout the supply chain have real control over the course of operations and are able to foresee and address any disruption or compromise of the agreed service.
Passenger Transport
Enhanced Transparency and Cooperation: BlockChain permits smooth and efficient integration of all services and an increase in transparency between the different parties involved. The agents involved in the entire transport chain, including users, have total control over the achievement of the planned travel and visibility of the course of operations in real time, with truthful and reliable information about everything that happens, which allows for the anticipation of events or causes that may compromise the service offered and / or received.
Administrative and Operational Efficiency: as discussed, BlockChain facilitates access to all information and documentation flow in real time, making it accessible and shareable to all parties and so minimising errors throughout the processes involved. Also, in a similar way to Freight Transport errors, any bad practices can be easily detected and lack of quality becomes transparent to the customer and to the provider, and can be addressed more easily.
Disintermediation and Open Market Possibilities; BlockChain can help create an open, decentralised, multimodal and multi-vendor mobility market. The visibility and 100% reliability of information, may act as a confidence builder between the different actors, improving collaboration even among authorities and opening the door to new payment systems which are more accurate and secure, and a global payment ecosystem with fewer intermediaries.
Opportunity for Collaborative Economy Business Models: this technology and its inherent trust building effects has a clear potential to support and provide business capabilities in the rise.
Sources: CETMO and “Impacte de les KETs en la digitalització dels diferents àmbits del transport”, CENIT-CINESI – December 2020
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