Protobios

As the hype around blockchain cools and enterprises continue to cut their tech teeth on the distributed ledger, non-technical challenges and interoperability hurdles are emerging
By Lucas Mearian

Senior Reporter, Computerworld | OCT 29, 2019 10:18 AM PDT


Ismagilov / Getty Images


After several years of proofs of concept testing, followed by pilot programs, enterprises deploying blockchain should turn their focus toward integrating the distributed ledger technology (DLT) with legacy data systems and making sure they can communicate with other external blockchains.

That advice is part of Forrester Research's 2020 Predictions, which highlight several upcoming challenges for the nascent electronic ledger technology.In the world of enterprise blockchain, the shift from irrational exuberance to realistic assessment is almost complete, Forrester said.




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[ Related: The top 8 problems with blockchain ]"While we still see a lot of excitement around what DLT can or could do, the focus has expanded to include questions about how DLT is going to deliver a particular benefit," the report said.

Among Forrester's predictions: the battle between private and public blockchains will heat up and the debate will reach corporate executive teams; 80% of blockchain deployments will be hybrid, multi-cloud or both; and non-technical issues will represent some of the biggest hurdles.

 "It really is first agreeing on what data is to be shared among partners, what that process should look like, and then putting everything on an appropriate legal footing," said Martha Bennett, a Forrester vice president of research. "You need to understand what yours and others' contractual obligations are. No one has done this to scale.

"For example, when a company rolls out a blockchain ledger, it will not likely integrate with existing corporate single sign-on capabilities. So, for a time – perhaps even permanently – a blockchain project will likely function on an exception basis, which propagates discussions around security and risk management.

"It sounds like a minor thing, but I've seen projects grind to a halt over it," Bennett said.Governance of a permissioned business blockchain is also a critical non-technical issue that hampers deployments.

Most often, determining how a distributed ledger will be managed falls to a single third party in charge of key considerations, such as who has access and who can invite new members onto the ledger.

Additionally, while early governance models have basic rules about onboarding new users, rarely do they address the offboarding process, according to Forrester – especially if rules have been broken and legal issues arise.Hybrid blockchains, which are expected to dominate ecommerce, also face hurdles  such as scalability and privacy.

For example, supply chain partners who enter into a blockchain must be extremely careful about data they place on the electronic ledger and the ledger owner should be aware of throughput issues that could affect costs.

Hybrid blockchains are a combination of a permissioned blockchain (for backend transactions between businesses) and a public blockchain, which enables a public-facing application.

That would allow consumers, for instance, to see how produce was grown on a farm and transported to grocery store shelves. Mastercard recently partnered with track-and-trace software provider Envisible to create a blockchain-based supply chain platform to help supermarkets trace the origin of seafood while also enabling consumers to see the history of the catch.

When Facebook launches its Libra cryptocurrency in 2020, it will need a public-facing blockchain network for users who purchase items with the digital currency and a private blockchain network for the banks backing it.

As blockchain ledgers proliferate in the corporate world, enterprises will need to ensure their flavor of distributed ledger can communicate with other platforms deployed by potential business partners.

The result: interoperability is expected to take center stage next year.Businesses should be "extremely" concerned about interoperability and integration, according to Bennett.

She said many of her clients building multiple blockchain networks began pinging her four or five months ago with questions about how they could all interoperate.

"The whole public-versus-private blockchain argument is the reason enterprises are becoming interested in the interoperability discussion. If I'm building silos with permissioned blockchains, is there an alternative?

If I want to run something hybrid, things would need to be interoperable," Bennett said.Interoperability also applies to public and private cloud infrastructures; some enterprises host their own blockchain technology while also outsourcing blockchain services from vendors, such as Amazon AWS and Microsoft Azure.

Some blockchain vendors, such as IBM and Oracle, have developed APIs to pass data from legacy systems or from one blockchain to another, but not necessarily between different platforms. And, once an external data source is added to a blockchain ledger, ensuring messages are secure and data is accurate and not duplicated becomes yet another issue.

For example, if a company has tokenized assets – meaning it created a digital representation of the value of an asset, such as oil or other commodities – the  company must be able to ensure those tokens are deleted from the original ledger once they've been traded or transferred to a secondary one.

Otherwise, the assets would be duplicated.It's already clear that there are several blockchain-based networks covering many of the same functions, such as trade finance, invoice factoring, shipping documentation, and product provenance.

There are also networks with adjacent functionality, such as supply chain track-and-trace and financing. To deliver on the promise of frictionless processes, those networks will need to talk to each other somehow.

Much of the debate for 2020 will be around exactly what it means for one blockchain network to talk another and how that happens: simple message passing? transfer of value between chains? interoperability at the state level?

"We've already got a plethora of startups and other initiatives promising (sometimes miraculous) solutions; expect the battle to heat up, but don't expect neat, widely applicable solutions," Forrester said in its report.

Many businesses risk creating siloed networks if interoperability isn't baked into a platform or the industry doesn't settle on standards.

Earlier this month, Gartner released a report predicting that by 2021, 90% of current enterprise blockchain platform implementations will need replacing within 18 months to remain competitive, secure and to avoid obsolescence.

Among the issues leading to obsolescence: blockchain interoperability, smart contract integration with legacy corporate data systems, and scaling issues.

Several industry groups are now working to address interoperability and scaling (the ability for a blockchain ledger to handle data traffic generated by hundreds or thousands of users).

Earlier this year, the Enterprise Ethereum Alliance (EEA) announced new and updated specifications aimed at helping developers create business-class blockchain networks that are faster, easier to use and capable of interacting with other DLT networks.

And the Linux Foundation is working on developing smart contracts that can be used across industries to create business automation processes via blockchain.

Those efforts are expected continue into the new year as the blockchain industry evolves.

Several multinationals are experimenting with blockchain-based platforms to ensure traceability and sustainability in their supply chains and to reduce costs. But challenges remain in the implementation of such solutions.

Consumers are more and more preoccupied with how products are made. After decades during which price and quality were the two primary attributes they looked for in products, nowadays the demand for sustainably produced goods is on the rise.

Contributing to this increased awareness are both a greater concern for the environment and also frequent scandals involving labor rights violations in the supply chains of some of the best-known brands, like Apple, H&M, or Nike.
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But telling sustainable products apart from their less sustainable counterparts in hard. After all, sustainably sourced or produced goods often don't look any different.

Many green labels and certifications seek to address this issue, but they are generally used for products that come in packaging (How would you stick a label on, say, a potato? If you had to sell it in packaging in order to show it's sustainable, wouldn't that defeat the purpose of the label in the first place?).

 And, despite the complicated audit process required to get such labels, they are often as fallible and corruptible as the contexts in which they are awarded.But what about goods like cut flowers, timber, diamonds, or fish? How can we tell if these products are sustainable?

That their production complied with the law — for instance, that our furniture is not made out of illegally logged timber? And that the workers who labored to bring them to the shelves of our local supermarket or shop were fairly treated?

Ensuring transparency and traceability across supply chains in our globalized economy is no easy feat. Luckily, an entire suite of technological solutions is emerging to help solve this problem.  

Blockchain to the rescue

Over the past five years or so, several global companies — and some startups — have developed blockchain-based applications to help track goods across supply chains. A pioneer in this area is IBM, which has established various such initiatives on its own and in collaboration with other companies.

For instance, the IBM Food Trust is a blockchain-based platform that aims to ensure traceability and sustainability in the supply chains of foods and beverages.

In addition, in August 2018 IBM launched TradeLens in collaboration with Maersk, the largest shipping company in the world. The aim of this blockchain-based platform is "to promote more efficient and secure global trade", IBM said in a press release.

Aside from IBM, recognizable names like diamond company De Beers and retailer Walmart have joined the blockchain bandwagon.

The way in which such solutions operate is that they work to transpose physical supply chains — that is, the networks of producers, intermediaries, processors, auditors, certifiers, sellers, and customers — onto an online, blockchain-based platform in order to create a virtual registry of the provenance and trajectory of products.

TradeLens, IBM Food Trust, and Tracr (the diamond-tracing platform) all fashion themselves as industry-specific ecosystems or networks. The importance of this detail cannot be overestimated, for, in order for the solution to work in the first place, supply chain actors need to opt in and join the network. And the well functioning of the platform depends on it becoming the most used solution in a given sector.

Blockchain — the distributed ledger (or registry) technology that was first developed to support the BitCoin —lends itself particularly well to the management of complex networks like supply chains because of its decentralized nature.

The two key issues with tracing products (particularly commodities) across supply chains are the need to establish trust among parties that often don't even speak the same language and the need to manage a large amount of data.  

The story goes that blockchain can help solve such issues. That is because, through its very design, a platform running on blockchain is secure. Through blockchain, users are only able to access the records that they are entitled to see.

And, before their information gets added to the blockchain, several other users (dubbed miners) get to vet it, thus ensuring that more than one entity has control of the accuracy of the stored data.  

After being checked, each block of information is then stored onto the blockchain and can no longer be altered by anyone. In this manner, the registry grows in size with the addition of new blocks of dependable information.

For instance, a fisherman in India may suggest adding a block with information about his latest capture of shrimp, containing details such as weight, provenance, date of capture, and others, to the blockchain-based platform that IBM is prototyping for Walmart.

This information would be checked by several miners (like the collection point where s/he dropped off the shrimp), who can testify whether it is accurate or not.  

If deemed accurate, the information would be added as a block onto the blockchain. With each passing through a new port or processing facility, the shrimp would get tracked using a QR code placed on the container in which it travels.

Once it reaches Walmart's shelves, the consumer would be able to access the entire history of this product using a simple scanner or an app on their smartphones.

By ensuring the accuracy of the information and all but eliminating human error, such a platform promises to reduce insurance, audit, and legal compliance costs for retailers. 

But there are several issues with this model. The first is the need for users to opt into platforms. In industries that are heavily centralized, like the diamond industry, it is easy for a near monopolist like De Beers to convince suppliers to partake in a platform that it launched.

But in so doing, it perpetuates asymmetric economic relationships and calls into question the issue of trust. Blockchain has been touted as a form of ensuring trust in online transactions among real-world strangers.

But what if the institution that controls the blockchain-based platform and dictates the rules of the game has vested interests, like De Beers does? It is conceivable that the blockchain could be corrupted in such cases, despite the monopolist's pretenses of non-involvement.

That is to say nothing of the varying levels of connectivity around the world. While Internet penetration rates are rising everywhere, there are still parts of the world where connection is poor.

If blockchain is the only way small producers can supply to global companies, then those of them who are the least connected — and likely the most economically disenfranchised — will be left out. Blockchain would thus exclude those in need of opportunities from having access to them.

As for industries that are more fragmented, such as pulp and paper, several conflicting platforms used to track at the same commodity could emerge. This would force producers and suppliers to specialize based on who their client is or to learn how to use multiple platforms. The risk of confusion and mistakes would evidently be high.

Focusing on functionality instead of the technology

In an interview with Knowledge@Wharton, Stefan Gstettner of Boston Consulting Group (BCG), warns against overhyping the functionality blockchain affords in the management of supply chains.

"In the early days of blockchain, there was the notion that blockchain can help connect parties in the supply chain," he says. "That is in general true. However, if we only want to connect parties that anyway know each other, there are many competing technologies like EDI [electronic data interchange], or what many call a supply chain control tower.

The question then is: Why should blockchain be considered a promising competing technology here?", he adds.

Instead, he recommends focusing on the unique functionality the technology brings, which is its ability to establish trust in interactions among strangers.

Companies must figure out how to channel this advantage while avoiding the abovementioned drawbacks of such platforms before being able to use blockchain in supply chain management on a wide scale.

For the time being, experts agree that it's still early days for blockchain; that most companies don't quite know how to use it to add value to their businesses and that the learning curve ahead of us is steep.