Political economist Francis Fukuyama predicted a future when social capital would be as important as physical capital, and that only those societies with a high degree of social trust would be able to create large-scale organizations capable of competing in the new economy.


Two decades later, an incredible tool is shoring up the foundations of social at the level of every transaction—blockchain. Originally gaining notoriety as the data technology underneath the cryptocurrency called bitcoin, today blockchain technology is expanding its reach far beyond the confines of currency and tackling issues involving transactional social trust throughout the world.


Blockchain is a cryptographically secure, shared data layer that enterprises can use to digitally track the ownership of assets across trust boundaries, opening up new opportunities for cross-organizational collaboration and imaginative new business models. As a shared source of trust, it can extend the scope of digital transformation from a single company to the processes it shares with its suppliers, customers, and partners.


So how does blockchain work?


A Smart Ledger That Builds Trust and Single Source for Truth


Imagine a ledger you’re familiar with, such as an Excel spreadsheet. Blockchain is like that spreadsheet, but with several key differences. First, it’s unchangeable; no data can be replaced. Only new transactions—such as credits to offset debits—can be recorded within it. Second, the blockchain spreadsheet is cryptographically secure. This provides a high level of confidence that the data hasn’t been tampered with. Third, the spreadsheet is shared among multiple parties. And finally, the blockchain spreadsheet has a mechanism—referred to as a consensus algorithm—that determines what is placed in the spreadsheet by mutual agreement among its users.


On top of this ledger, many blockchains will provide “smart contracts.” These are representations of business processes in code; they extend the opportunity to have not just attestable data shared between multiple parties, but also attestable processes. Organizations can agree on the contract that defines HOW their business will be done, and that implementation will be executed consistently with attestable recording of the interactions by the participants. When fully automated, blockchain can enforce consistency in execution, assist with dispute resolution, increase accountability, and deliver end-to-end transparency that can inform better business decisions.


Ignite your Blockchain Strategy


As you evaluate your opportunities for transformation, ask how your business can take advantage of this technology to provide attested data and trusted workflows, transfer of assets, track provenance of goods, or provide audit capabilities.


Is blockchain appropriate?

A target use case will involve a process that spans multiple parties, with multiple parties writing data, and where there is a lack of trust. If these characteristics aren’t present, a traditional database might be more appropriate.


What scenarios would benefit from smart contracts?As an organization begins to look at scenarios, leaders need to consider what would make sense to place in a smart contract. Is this something the organization would create for themselves, or share with others?


Who are the right consortium members for your scenario?It’s important to understand which organizations would be appropriate to partner with for a blockchain opportunity.


Does your organization have the “market power” to implement the scenario?Identify whether your organization has the ability, based on market size and/or influence, to get other parties to participate in a consortium.


What transactional data will you have to provide contextual reputational data?

It will be key to understand the specifics of the data you’ll have stored within the blockchain as trusted transactions. Once that is defined, identify which audiences will respond to that content and what its value is.


Good for Business, Good for Society


Imagine a company that makes ice cream and sells its products to companies all over the world. The routes taken from farm to factory to store shelves will vary, and may include some combination of trucks, boats, planes, and warehouses.


A blockchain-powered solution would capture information about the product from participants across the supply chain and from different perspectives. The blockchain data could serve as a source of truth for the location of origin for the product, all the way down to the cows the milk came from and the patch of farmland the vanilla was sourced from.


A blockchain could record registered attestations important for supply chain participants, producers, and consumers, including ensuring source farms use sustainable practices and live up to fair trade practices. Because the blockchain can also contain representations of business workflows housed within smart contracts, it can be used to automatically define, monitor, and enforce agreements between members of the supply chain. For instance, when goods are delivered to the final recipient, the smart contract could automatically trigger payments, and when there are disputes, a contract could govern how claims are handled among the participants.



Automated blockchain triggers and enforcements might have even helped entire nations avoid humanitarian disasters caused by economic transactions, such as the milk scandal of 2008 which claimed 300,000 victims, dis-incenting the use of forced child labor, or managing recent threats from ISIS to poison the European food supply.


Powering the Supply Chain with Internet of Things (IoT) technology


The intersection of IoT and blockchain also offers new ways of monitoring and enforcing compliance throughout a supply chain. Let’s look at that ice cream company again: Ice cream is one of many types of products—such as meat, milk, and medicine—whose safety for consumption can be impacted by the environment in which it’s stored. Ice cream can melt and refreeze while in transit, which can make it unsafe to consume without any obvious signs to consumers that they are at risk. Historically, the ice cream company’s transport partners might be unaware of problems or unwilling to share their information with the ice cream company or their customers, as it could introduce financial liability.


With a blockchain-powered solution, sensors could deliver temperature and humidity information to a smart contract, which would monitor the status of the environment against the terms agreed to by the supply chain participants. If the temperature or humidity falls outside of the acceptable range, it could trigger a compliance issue within the smart contract. And because all parties have agreed to use the blockchain as a single source of truth, the ice cream company would be alerted to this in real time, which would allow it to both pull the product from the supply chain and hold the appropriate party accountable for violating the terms of the transportation agreement.


IoT sensors combined with blockchain could also help the pharmaceutical industry tackle a major public safety issue—counterfeit drugs. It is estimated that counterfeit drugs cost the industry approximately $200 billion a year. Up to one-third of drugs in developing economies are counterfeit, with 30% not having active ingredients, so companies such as 3M are introducing blockchain-powered solutions that can detect and deter tampering to address a bottom-line concern and a public health issue.


Empowered and Trusted Digital World


The true power of blockchain technology is best harnessed when its many attributes are brought together across organizations. Consider this scenario: John, a Seattle-based driver for a popular ride-sharing service, is an excellent driver and has a stellar reputation with customers. John wants to buy a high-end auto to offer a higher tier of service but has limited funds. He’ll need proof of a driver’s license, a loan, and insurance.


Today, the auto manufacturers, banks, insurers, and government agencies are all evolving their digital capabilities and services in parallel. What would happen if they digitally transformed with an eye to opportunities beyond their walls and focused on how they can transform to power the smart economy?


With a “smart economy” approach, auto manufacturers, recognizing that millennials are buying fewer cars, start exploring alternative models for car sales and leasing. They create a smart contract for doing business with the ride-sharing service to underwrite loans for qualified drivers.



Empowering Digital Societies


Navigating New Zealand’s largest city with Auckland Transport and digital transformation

John applies to lease a car from the car manufacturer using that smart contract. The smart contract for the application process uses multiple contextual reputation sources:


The government attests to John’s identity.

The department of transportation attests that he is currently licensed to drive this type of vehicle.

The ride-sharing service attests that he is currently employed and confirms his salary.

The ride-sharing service attests to his driving reputation (how many rides, how often, value, etc.).

John’s bank attests to his wealth and ability to make payments.The auto manufacturer attests to the service history of the vehicle and provenance of its parts.

Then an algorithm is applied against this data and a determination is made about what type of offer should be made to John. With a low score, John could be offered a lease using an automated, smart contract-based process with reasonable rates. With a good score, John could be offered the car at no cost with loan terms that allocated a percentage of his fares directly to the manufacturer or loan servicing company. With an exceptional score, John would be offered the car at no cost, as well as coverage of fueling and tolls, all of which would be paid for with a percentage of his fares.



John will also need insurance for his new car. An insurance company can be given access to the vehicle service history, John’s employment details, and John’s driving history to generate a custom insurance quote for the vehicle. As with tolls and lease payments, smart contracts could be interconnected with fractional payments being made to the automaker from the proceeds of fares for rides delivered. As organizations coordinate using this incorruptible ledger, they will increase the speed and efficiency with which every kind of transaction is completed.


From a public safety perspective, government regulators and riders of the car service can feel confident that their ride will be safe. Attestations and transparency are available to show that John has passed criminal background checks, has a valid license, has a history of driving in the community, hasn’t driven more hours today than allowed by law, and has a positive reputation as a driver. They can also trust that the car John is driving is safe—that it has been well-maintained and is not subject to a recall. The government can also have a synchronized copy of the blockchain from the ride-sharing service to provide a real-time audit to help ensure compliance and reduce enforcement costs.


The Edges Are No Longer the Boundaries


Billions of dollars are being invested in blockchain, and some of the smartest people on the planet are engaged in understanding how this technology can reinvent organizations and industries. The potential impact of blockchain is driving businesses to rethink existing business models, re-examine opportunities previously thought nonviable, and explore a new frontier of opportunity that can impact the bottom line and benefit society.


A new smart global economy built on an innovative digital platform of trust is being constructed. The edges are no longer the boundaries and the opportunities are limitless, with new directions and possibilities. It takes a growth mind-set and mission-driven approach to activate progressive change and make it happen. The organizations that have the agility to reinvent themselves, that rise above the noise to unlock new business opportunities in a commercially viable way at speed, will thrive in the digital age.

This report is provided by Harvard Business Review. See more here: https://hbr.org/sponsored/2017/10/how-blockchain-will-accelerate-business-performance-and-power-the-...