Hi Daniel, there’s been a lot of talk about Blockchain technology. Can you tell us what it is, and why it’s important to business?
Blockchain began in 2009. Most people have heard of Bitcoin. Blockchain is actually the key underlying technology of Bitcoin. It is a way to have “blocks” of encrypted data “chained” to each other in a robust way to ensure the data cannot be altered, once its transaction has been recorded. It uses sophisticated mathematics to achieve this. In addition to a robust data storage mechanism, distributed ownership is the other powerful benefit of Blockchain technology. Nobody can monopolize the Blockchain, and all participants play a role in ownership and authentication of transactions.
What’s the current status of Blockchain adoption in industry segments, and how is its outlook?
Essentially, Blockchain is inevitable. Everyone needs to explore it, learn to embrace it. Research analyst Gartner has put Blockchain as one of its top tech trends for 2020, alongside AI, distributed cloud, hyper automation and human augmentation, while the business social networking site LinkedIn chose it as the number one most in-demand hard skill for 2020, by employers, more important than cloud, AI, UX design, and even sales skills.
A lot of innovation in business has been happening with Blockchain. Spending is very strong. Its five-year cumulative growth is over 60% CAGR, led by the banking industry. It’s really great for financial transactions. After banking is the manufacturing industry. Blockchain is excellent for managing the supply chain. Other key Blockchain adoption industries include retail, professional services, and utilities.
What are the reasons behind this strong adoption and growth outlook?
There are many business benefits to using Blockchain technology. It is fundamentally corruption proof. It offers increased traceability, and irrevocable transactions. It is a decentralized technology, and the digital ledger is shared by all participants. All activity is consensus-based. All participants own the Blockchain and verify it. This creates trust among parties, very quickly and efficiently, and is crucial for a scalable, robust economy. This is why cryptocurrency is quite successful, although we are using the Blockchain technology directly, not necessarily with cryptocurrency. Indeed, aside from cryptocurrency, we are seeing increasing use of Blockchain technology for supply chains and for Smart Contracts. These are the three top areas of application now.
What do you mean by Smart Contracts?
Blockchain technology has evolved considerably since it was introduced in 2009. At the time, the primary purpose was to enable Bitcoin. Over the years, Blockchain has been greatly enhanced. An alternative cryptocurrency called Ethereum has come about, built on the ERC-20 open framework. It allows programmable actions that are triggered by transactions. These are called Smart Contracts. You can have the Smart Contract trigger certain actions, when certain transactional conditions are met. For example, you can program a Smart Contract to transfer ownership of a real property, once the money has been transferred from buyer to seller, with the validation done by peers in the Blockchain network. Traditionally you would need an escrow service but now this middleman is eliminated and the entire process is much faster, more secure.
You've mentioned great adoption of Blockchain in industry today. Can you give us examples of real world usage?
Sure. In fact, many industries will adopt Blockchain technology in the coming years and evolve their digital economies, digital ecosystems with Blockchain as the basis. Blockchain will be essential to enterprise digital transformation.
As for real world usage today, I think the best example is with the current pandemic situation. In general, COVID-19 has been a tremendous driver for accelerating the digital transformation of organizations, away from physical workflows toward virtual presences, virtual interactions. My company, CITIC Telecom CPC, is seeing massive increases in use of our virtual applications, such as for video conferencing, remote access, virtual desktops, data warehousing. Our customers have already been using these remote and virtual applications, but now we are seeing a major surge.
On top of the virtual applications, many use cases of Blockchain have arisen because of the pandemic. These applications are generally behind the scenes and invisible to the end-user, but they are very powerful.
China, for example, launched twenty Blockchain projects to cope with COVID-19, including for infection tracing, medical materials tracking, donation tracking, and insurance claims. Blockchain enabled all these to be rapidly implemented, within days.
Shandong University was able to deliver a rapid rollout of a pandemic data collection and monitoring system, in just two days! This was a system for the real-time online collection of the health status, hometown information of students and faculty members. It is used for monitoring the outbreak status in the university. Access levels to the data depended on varying levels of authority to ensure data integrity.
Compared to a traditional database system, the Blockchain approach makes the data and transactional record very robust against tampering. Once a student or faculty submits the health information, it cannot be tampered with. This is crucial for management during a health crisis.
Additionally, China launched a nationwide health tracking system for some 1.4 billion people! This system provides a color-coded health status (similar as traffic lights signal) for the whole population, with different colors indicating the health status of individuals on their smartphones. If this was to be implemented with a traditional database system, not only would it take a much longer time to develop, it will also require huge processing power for a centralized database. Plus, it would be challenging to scale and ensure security and data integrity. It might need weeks or months to be completed. But with Blockchain, China did it in just a few days!
Besides rapid rollout, what other benefits can Blockchain offer under the current pandemic crisis?
Blockchain is ideal for any kind of supply chain, whether it's during this pandemic, or for improving traditional supply chains.
Let's look at some traditional supply chain pain points. For example, traceability. This is crucial in a supply chain, and Blockchain makes the whole process auditable at every step, especially for complex supply chain management. Regulatory compliance, while remaining flexible, are also challenges. With Blockchain, all transactions are immutable, tamper-proof, even by users with high-level access, yet you can have the power and flexibility, and efficiency, of real-time Smart Contracts. As for stakeholders, traditionally it's been difficult to balance communications and trust among all parties, with risk reduction. Blockchain solves all these issues.
So, aside from rapid deployment, Blockchain offers four key benefits to supply chains: Extremely high transparency, security, efficiency, and trust. Many people think of a Blockchain as a database but it's more of a ledger. The data is enclosed in the ledger but the secure ledger is the crucial new technology.
So, looking at the pandemic crisis again, Blockchain can greatly empower donations and materials tracking. All these were developed by China and deployed in a few days. For the materials delivery platform, the general public can view the entire process to ensure transparency and trust within the community, to see the tracking from donor to recipient. Demand and supply for medical materials can also be traced with Blockchain.
How about outside of supply chains?
In China, medical and insurance claims are also benefitting from Blockchain. While the technology is already being used within the insurance industry, in the case of this COVID-19 pandemic, by implementing Blockchain-based insurance claims, the entire process is much safer from a health standpoint.
Insurance processes often involve a lot of documentation from multiple parties, and with medical insurance it even involves doctors and hospitals. Blockchain not only accelerates the whole transaction process, from insurance purchase to claims, but also removes face-to-face contacts, and physical paperwork. This eliminates a lot of infection risk. It also makes transactions traceable and authenticated. The whole process is much faster, more efficient, safer, and robust, even conducted from just a mobile phone.
Besides the pandemic crisis, how is rapid adoption taking place in other industries?
Aside from the COVID-19 use-cases, we are also seeing Blockchain applications roll out in various industries. For example, in retail, Blockchains are helping with customer loyalty programs. These programs are being revamped to implement new technologies, including Blockchain.
Most airline loyalty programs have a single data source, with numerous members and transactions. This loyalty program involves multiple airlines, and the customers of those airlines, all with different promotions and policies. So it's a very complicated program with many stakeholders and transactions. Blockchain brings incredible efficiency and security to such a system, solving many problems and simplifying the whole workflow, in addition to providing very strong security against hackers and transaction fraud.
Interestingly, traditional unused loyalty credits are recorded on the issuing platform's balance sheet as a financial liability and deferred revenue. But under the Blockchain mechanism, they are not recorded, and are considered shared liability across multiple parties. So there are business advantages other than technological aspects.
Enterprises may have concerns about using this new technology, which seems quite complicated.
In recent years, Blockchain technology has undergone a lot of standardization, and now there are ready-to-use APIs and programming libraries, modules, and even applications, that can be quickly purposed for specific business needs. So I would say it's easier than ever to implement Blockchain applications. This is one of the primary reasons China was able to so rapidly deploy them for pandemic management.
Utility companies are really excited about Blockchain. They have to keep track of many millions of users, and it's very messy. By recording invoices and payments on a Blockchain, they can have better visibility into Accounts Receivables, and other operational metrics.
Enterprises generally can build their operations on Blockchain over existing systems such as ERP, CRM, e-commerce, customer service, technical support, finance, office applications, leave applications, payroll. All these can be built upon a General Purpose Blockchain API platform, using the same generic libraries to start quickly keeping track of data transactions.
If a company is considering implementing Blockchain technology, what are some of the key things to consider?
First of all, who is going to do the design and implementation? Traditionally, you would find a system integrator to do this. Or you might develop it in-house. But do your existing staff, or your chosen system integrator, have the necessary skills?
You also need to consider what additional value your new Blockchain application can create. We already talked about a better balance sheet regarding loyalty programs, and visibility into Accounts Receivables. But do you have existing policies, or stakeholders, that are restricting the possibilities of your new Blockchain system? Perhaps those policies are obsolete, designed for less secure, slower, inefficient systems?
Privacy is another thing to consider, especially when data cannot be altered or deleted. You want to make sure you have the right procedures to ensure data you put into the Blockchain system is what you and your stakeholders, including customers, want.
You also need to think about the infrastructure to support the new Blockchain application. The system will be distributed across many nodes, so you must be mindful of network latency. Also consider network stability and security, system and data loading capacity, and especially technical loopholes when programming Smart Contracts. Additionally, decide how you will monitor the ongoing process and make fixes or improvements over the coming weeks, months, years. Do you have the right technical skills to do so, and how will you get feedback and consensus among distributed stakeholders?
These are some of the considerations to undertake, if you want to have a smooth Blockchain implementation, and gain optimal ROI from this investment.
At what scale does it make sense to begin adopting Blockchain?
Actually it depends on your particular needs. Blockchain is very scalable of course, but there are also efficiency and speed advantages which you can immediately benefit from. It is a tamper-proof system. Because of auditability, it is a great way to analyze your company's data to gain management insights.
What role does your company play in the context of Blockchains?
My company has been supporting our customers' Blockchain deployments with our flagship portfolio of cloud computing, enterprise networking, security and data warehousing solutions. Our SmartCLOUD™ computing platform obviously can run Blockchain and Smart Contracts processes, and our other solutions help ensure high performance and reliability. In fact, our TrustCSI™ managed security service helps protect Blockchain applications. Don't forget, access to the Blockchain must be secure. While the Blockchain itself is tamper-proof, anyone with access can add unauthorized data to the Blockchain, which is irrevocable. That can be a nuisance, or a major privacy and confidentiality problem. We have sophisticated security mechanisms to help prevent that.
Any closing thoughts for our readers?
The future of Blockchain is clear. China has even made it mandatory for certain senior government officials to learn about it. There is a lot of activity going on to standardize Blockchain in the legal and regulatory fields. Eventually Blockchain will become a very widely used ICT foundation for many areas of society.
Our Chief Information and Innovation Officer, Daniel Kwong was invited by German Chamber of Commerce (GCC) to share with the members on the business applications and data security of Blockchain. Watch the full video:
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