Smart Industry 1/2017

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Smart Business Title Story: Blockchain For example, many IoT applications involve quickly setting up relationships between multiple business entities involving legal and financial factors as well as performance. Service level agreements (SLAs) are a good example of where blockchain can provide oversight and assurance. By using so-called 'smart' contracts across a blockchain, participants in a business relationship can be confident SLAs are continuously monitored and that rewards and penalties are applied immediately and fairly. But there is much more than just IoT to blockchain. The market is currently in an “advanced pilot state,” according to Eric Krause, a consultant for global IT service company Infosys. At present there are many prototypes and parallel developments, often based on different standards. This is necessary in the early stages of innovation as ideas surface and grow, he explained. The top five initiatives are Bitcoin, Ethereum, R3, Hyperledger and Ripple. “With regard to Hyperledger and R3, we already see collaboration – donation of code – between R3 and Ethereum; so we might see a stand ard developing in the next years,” he says, We are looking at technologies at an early stage of maturity and most people don’t want to accept that Martha Bennett Principal analyst, Forrester Research adding: “In my opinion, this is one of the pillars for mass adoption.” Are early movers in this field likely to benefit, or are they simply going to absorb a lot of costs that others will then benefit from? “No one wants to be first or third – fast follower is the most wanted position,” Krause says. “After all, it’s always the second mouse that gets the cheese.” “Blockchain is no magic potion for everything,” He admits. “Although the distributed ledger technology has the potential to change and improve the current financial services industry, it does not constitute a one-size-fitsall solution. Potential business cases need to fit to the technology’s specific characteristics for interactions including factors such as security, decentralization, complexity and the number of participants in a transaction.” It can change the nature of interactions, but at this state of maturity it is difficult to predict how exactly it will do that. And that’s exactly the right perspective, agrees Martha Bennett, principal analyst at Forrester Research in the UK. “It depends who you are and what you do but the challenge with blockchain is that we are looking at technologies at an early stage of maturity and most people don’t want to accept that,” she says. When people look at blockchain “they tend to want the best of both worlds,” she adds. They want all of the aspects related to replacing trust between humans with something carried out by machine, based on incorruptible mathematical concepts. But they also want none of the downsides that are present in the only blockchain network that currently delivers, namely Bitcoin. Those downsides, Bennett says, are the reasons why Bitcoin isn’t generally suitable for most enterprise use cases – it is too expensive to run: How the blockchain works A wants to send money to B 1 Those in the network approve the transaction is valid 4 2 The transaction is represented as a ‘block’ 5 The block then can be added to the chain, which provides an indelible and transparent record of transactions 3 The block is broadcast to every party in the network 6 The money moves from A to B The blockchain is a distributed database, a kind of giant, global spreadsheet that runs on millions of computers. It’s open source, so anyone can change the underlying code and can see what’s going on. It’s peer to peer, so it doesn’t require powerful intermediaries like banks, merchants or governments to authenticate or to settle transactions. The blockchain uses state-of-the-art cryptography, so within a global, distributed database the fact that we’ve done a transaction can be recorded. But what else could it record? Theoretically (and, increasingly, practically) it records any structured information, not just who paid whom but also who married whom or who owns what land, or what light bulb bought power from what power source. Experts agree that IoT will need a blockchain settlement system, because banks will be overwhelmed having to settle trillions of real-time transactions between machines and other objects. Most blockchains – and Bitcoin is the biggest – are what is known as permission-less systems. Anyone can do transactions without knowing who the other party is and without any middleman or central authority involved. Blockchains all have a digital currency of some kind associated with them. There are a number of them already, but the Bitcoin blockchain just happens to be the biggest. 12
“If you are interacting with Bitcoin code and take out the proof of work mechanism it is expensive.” Beyond the general sense that enthusiasm may be getting ahead of the facts, companies and individuals too often simply latch on to the exciting new technology and then, belatedly, try to come up with a way to apply it. “There is nothing wrong with that but you need to really think end-to-end about all the things you need to put in place to succeed,” Bennett notes. Promising ideas often don’t scale well or they have security issues, she explains. For instance, by definition, any data in a blockchain is in clear text. This is great when you want complete transparency. However, whether it is within IoT or in financial services, even when the group involved is closed and relatively small, not everyone should be able see everything because there may be personally identifiable information (PII) involved, or information that is commercially confidential. “You would be amazed how much an insider can infer even from metadata,” Bennett adds. Opportunities ahead Despite these important concerns, Bennett sees tremendous potential in blockchain for a wide range of business activities. “For IoT to really come into its own, we need a different approach to distributed computing like blockchain, where there is a consensus mechanism,” she explains. “We don’t know yet what that will look like but it may take five years or more to work it out.” Another factor in the adoption of blockchain may be the advent of the embedded subscriber identity module (eSIM). These are likely to appear in many circuit boards for machineto-machine (M2M) app lications. It's widely expected that blockchain, along with eSIMs, will simplify and improve the security of identity-focused operations essential to 5G as a trusted storage medium for personally identifiable information. People in the industry also hope that blockchain can provide the basis for automatic provisioning of dy- Focusing on fibers ■ IBM A huge and vital global market for cotton fiber is on its way to harvest due to the assurance and efficiency provided by blockchain. The Seam was established by some of the top companies in global agribusiness to specialize in commodity trading and management systems. In January 2017, the Seam, announced it is working with IBM to form a blockchain consortium for the global cotton industry. IBM’s open source blockchain technology, called Hyperledger Fabric, will be used to create a supply chain and trading ecosystem. Combined with ‘smart contracts,’ the technology is seen by the consortium as having significant implications for global trade. It provides cross-border settlement and instantaneous transfer of currency or other assets when defined conditions are met. The Seam is situated at the intersection of agriculture, finance and technology. It began operating 17 years ago as the world's first completely online, anonymous exchange for cotton trading. It has since applied the lessons learned in other commodity sectors and even in financial tech. Its owner-members include Calcot, Cargill, Ecom Agroindustrial, EWR, Louis Dreyfus Company, Olam International, Parkdale Mills, Plains Cotton Cooperative Association, and Staple Cotton Cooperative Association. Mark Pryor, chairman and CEO of The Seam, said the discussions with IBM began in late 2016 with the goal of launching an end-to-end proof of concept targeted for mid-May 2017. He says he expects the technology will be transformational for the cotton industry because there are so many organizations, processes, systems and transactions involved “from field to fabric.” “This blockchain will be open to the global cotton industry,” he explained. “IBM will play a key role in driving global adoption, with its digital footprint in all cotton producing and consuming regions.” The Hyperledger Project was initially built on code provided by IBM and a startup called Digital Asset Holdings. Other members of the group include Cisco, Fujitsu, Hitachi, Intel, Red Hat, VMware, Deutsche Börse Group, J.P. Morgan, and Accenture. 13 photo ©: Agricultural Research Service, USDA
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