Developing standards key to success of blockchain

(Photo: Shutterstock)

(Photo: Shutterstock)

Blockchain in Trucking Alliance is stepping up to fill the gap in the transportation market

From a global perspective, there is irrefutable evidence that the world is getting smaller. Maybe not physically, but certainly economically. Societies are interconnected like never before; economies dependent on each other. It’s that way on a global scale, and it’s true on a local scale within countries, states, cities and towns. And it’s especially true in the business world.

The butterfly effect is truer today than it has ever been before.

The issues holding back these relationships, especially in the supply chain, are many. Language differences, time differences, and even cultural differences hold back the common good. They are obstacles to be overcome. Throw in trust issues between parties, and it’s a wonder that business ever gets completed.

But it does.

Now a technology has come along to overcome all these obstacles. Blockchain has taken center stage in 2017, and we are only at the beginning. But before everyone declares blockchain the solution to all the world’s problems, authors Richard Samans, head of the Center for the Global Agenda and Member of the Managing Board, and Zvika Krieger, head of Technology Policy and Partnerships, bring up a few words of caution in a recent white paper from the World Economic Forum title. “Realizing the Potential of Blockchain, a Multistakeholder Approach to the Stewardship of Blockchain and Cryptocurrencies.”

The paper’s authors note the enormous potential of blockchain, but also caution that without proper development, blockchain may not provide the connected links needed to be the game-changing technology the world seeks.

“Distributed ledger technology promises to have far-reaching economic and social implications,” they write. “By leveraging a global peer network to assure directly and transparently the integrity of value exchanged between parties, blockchain appears likely to transform a number of important industries that supply or rely upon third-party assurance. It could prove to be a broader force for transparency and integrity in society, including in the fight against bribery and corruption. It could also lead to extensive changes in supply chains and governmental functions, such as central banking.

“The extent to which this new technology realizes its potential will depend in substantial part upon how well stakeholders steward its development,” they add. “There remain important open governance questions regarding both the functioning of the technology and its current and potential applications.”

The authors by no means dismiss blockchain, but through a 46-page document highlight some of its potential, some possible pitfalls, and summarize areas that blockchain still needs support.

Perhaps the greatest area still in need of development, the authors note, is the governance of the blockchain. While the blockchain itself operates as a peer-to-peer decentralized database with no single owner of any chain, standards need to be created. Several groups have stepped into this space, including the Blockchain in Trucking Alliance (BiTA) in the transportation space.

“Like the internet before it, the blockchain promises to upend business models and disrupt industries. It is pushing us to challenge how we have structured society, defined value and rewarded participation,” the authors note.

Blockchain is several things, it is encrypted, it is inclusive, it is immutable, and it is historical. It is also still developing and being shaped. This is where the stewardship becomes so important.

“Where the internet democratized information, the blockchain democratizes value and cuts to the core of legacy industries like banking,” the paper says. It adds that the true power of blockchain is that it is open and permissionless.

“The genius of distributed ledgers is that the technology (and everything that happens with it) is and must be distributed,” the authors write. “Power is distributed. Heavy-handed government intervention would kill this embryonic technology in its egg. Rather, we need self-organizing, bottom-up and multi-stakeholder governance. In fact, this type of governance is the best protection from government interference and subjugation.”

In some cases, that means industry associations, such as BiTA, must step forward to develop standards and ensure that industry participants are following those standards. “In any one marketplace or ecosystem, we want everyone using the same code, the same chain and the same kinds of transactions to get the efficiency,” Brian Behlendorf, CEO of the Linux Foundation, said.

“That means engaging industry associations specific to each industry and educating them on the trade-offs between (a) sharing enough data in the chain to reassure everybody of the integrity of, for example, the provenance tracking process; and (2) providing enough confidentiality to participants that competitors cannot figure out each other’s businesses or deduce terms of agreement with other members of the market or ecosystem,” the paper’s authors note.

Systems must be designed to be both confidential and auditable, they say. They are also dependent on how much information businesses are willing to share. An example of this is in the financial markets, where developing a “know-your-customer” (KYC) utility has proved daunting.

“There is an enormous appetite in the financial services community for a KYC utility, and blockchain is one way that such a utility could be operationalized,” Jesse McWaters, of the World Economic Forum notes. “However, before this can happen, institutions need to agree on standards and practices for the exchange of KYC data. Reaching that agreement among enough institutions to start building a network effect is the hard part and blockchain doesn’t actually do anything to fix that problem for us.”

But as quickly as industry standards are developed, there is a danger to doing so too soon. “The space is still so young that the desire for standards, while well-placed, runs the risk of hardening projects that have really just come out of the lab,” Behlendorf said. He cited the boom of online credit-card purchases as an example. “People were in such a rush to take credit-card orders over the internet that they would use anything we came up with.” The result was an inferior internet security paradigm still in use that uses cookies to store items in virtual shopping carts, but have also developed into tracking devices that have turned the web into a “surveillance machine.”

So, while the authors note several challenges to blockchain adoption, there are also plenty of possible uses. Within the supply chain, the Linux Foundation has launched Hyperledger, which is an open-source collaborative effort to advance blockchain technologies across such industries as banking, IoT, manufacturing and supply chains. The effort focused on distributed ledgers and smart contracts separate from cryptocurrencies, for scenarios where participants in a network want to share a recordkeeping system and to automate additional transactions on top of that shared ledger.

Using blockchain, goods can move throughout the supply chain with each step in their journey recorded. Every transaction, from the initial order, to the loading of a trailer, to driver pickup, to tracking and delivery can be recorded and automated on the blockchain. When final delivery is made, payment can be reconciled quickly and easily with no paper, but a documented, indisputable ledger in its place.

Linux’s Hyperledger group includes over 130 businesses all working together to ensure blockchain will be successful.

The authors conclude the white paper by summarizing work that still must be done, including attracting necessary levels of stakeholder participation; setting standards; creating stronger advocacy which will slow regulatory oversight that could stifle innovation; develop policy and watchdog networks; build delivery networks for the technology; and step up education efforts, applied research and scientific research.