Business level applications, profitability and real-life problems, a revolution running late
Acheat proof database is indisputably something we need. Blockchain is close to give us one finally, and its other features make it a strong contender to be one of the major technologies helping us facing global challenges we have never faced before. At least, this is what we expected a few years ago, but the revolution does not seem in a hurry.
A discussion and training event on UniChain application in practice took place in Budapest – Hungary on 7/June/2020
„We overestimate an innovation’s impact on short term but underestimate it on the long run. One can definitely see this working in case of blockchain.” — Roy Amara / Bill Gates
At Blockchaineum, we have been working on blockchain projects in the recent years. Meaning, we were working on concepts, doing financial plans for blockchain related projects, consulting on business strategies and involved in education and many more, but the breakthrough is still to come. Let me put it this way: the biggest chunk of our revenue has no direct connection to DLTs. Raise your hands if you have different experience. Why this is the case?
I, being a business strategist, see strategic problems everywhere. Strategy is my hammer, I admit, and fair enough, I may sound a bit biased with my nails. I am still convinced that hurdles are everything but technical. When I accepted the challenge to review the UniChain model I took this nontechnical approach taking the technological statements on face value and estimating its solutions through these glasses.
A few months ago, I was giving a lecture on blockchain technology for businessmen in a prestigious Hungarian business education institution with a friend of mine. He has been working with IoT for ten years now, but this is still in educational phase. Well, blockchain is an even younger beast.
So, what specifically are the challenges then, and more importantly, how can we tackle them?
- An inherently complex technology that ’no one understands’. The statement is exaggerating, but for sure we need a strong literacy in too many sciences.
- Confusing terminology is still an issue: misconception of cryptos and their rate, innovative financial product approach instead of financial innovation, and the core ideology, crypto anarchism is not compatible with business.
- Inappropriate expectations as a consequence of the first two.
- Nothing is visible yet when the subject is blockchain. On a conference, a few years ago, I have seen an interesting status snapshot that 70% of infrastructure, 30% of middleware and only 10% of the applications are in place. However, this information is far from up to date, and source of it is also doubtful, it explains the problem. A small part of it for sure: it is way too rare to interact with and have first-hand experience with the technology. No need to add that most of us may never need this experience.
Creating demand through education
This is the good old chicken or egg problem in this sense: it is difficult to understand the technology without the chance to meet it and we will not see more blockchain without decision makers and business executives can understand it.
In short term, education is necessary, and although the technology is way too complex for everybody to understand it deeply, the basic logic is possible to absorb and mental models can be created. Smart contracts, blockchain, ICO and tokenization may sound alien at first, but we can use some practical examples and nontechnical language to explain modus operandi. Blockchain is more digestible if we imagine it as a database, although we know it is not one. Database is clear, unlike the more precise ledger or a transaction register. This way we can coin a tower of shoe boxes that we fill with our stuff and build them on top of each other when we move to a new house, and keep it under surveillance for the protection, maybe a constantly growing file (a Google table, let’s say) alternatively. Smart contracts are neither smart nor contracts — as it was already pointed out many times -, all of us can understand a file containing all contractual info, setting up the contractual environment for linking to multiple unknown participants to deal in an automated way, like what a web shop does. Tokenization may not ring a bell to many, but traceable virtual units with own ID and data — and sometimes value — holding capability are offering several mental models for a token, like web cookies, QR codes and airline coupons. Bearing this in mind, it is way easier to accommodate to how tokens can help accountability and trace exceedingly small units of value and time for a really long time and build automated processes on them.
In mid-term: ecosystem creation and bringing physical and virtual closer to each other
If we look a little bit further, we see another type of challenges. The minimum functions of any chain and so are the main decisive factors of value: (1) digital ledger, (2) consensus, (3) digital asset, (4) network participants. Let us continue with the oversimplifying game and assume the digital ledger is the hardware or the safe if you like, while digital asset is what you keep there, you can call it money (crypto). So far so good. The interesting part is the other half of the game and this part is the hardest nut to crack, although they decide if a chain to fail, survive or thrive. Imagine consensus method as a rule how to let entries in the system, while network participants are the users of our currency and data or the people who care if we exist if you like.
The validation game or the consensus question is one of the big challenges to tackle. Blockchain and DLT tech is working flawlessly when it can operate as a closed system, where the process involves virtual (or virtually traceable) transactions. But here is the thing: in most cases that is not how it is. People are transacting typically offline and our physical goods require human interaction to bridge the communication gap between the physical and virtual world. To tackle this, clear and strong use cases must be identified and find a way to make sure avoiding human errors and wrongdoing by standardized monitoring. Advanced sensor technology offers an obvious fix if processes matched and technology is stable. By today, one can see many exciting use cases and promising applications, especially in the supply chain and automotive. These are predominantly private chains. They are usually operating with a different logic (and so are not even considered actual blockchain by many) and separated and unavailable for the public. Communication possibility with those chains would open new doors: loyalty programs to run according internal rules and having the benefit of liquidity of public trading even on a secondary market, for one.
This brings us to the other half of the challenge, namely network participants. Regarding the limited number of users, a new chain, even with superior technology is facing a limited growth potential as most of the users are bound to the existing chains. Let us bridge this gap then, and make sure the new chains can interact with the old and large ones. Why not help them to communicate with each other? This is a trendy subject, and this is what we mean by interoperability and IBC (inter blockchain communication) and fortunately, we see many smart people working on this question. The answer is not that obvious because it raises more questions like the matching of consensus methods and (maybe close to exponential?) scalability. But if they can solve it, they do not only solve the main problems the technology is facing currently; they also create new opportunities to build functioning ecosystem concepts — just like in our silly airline loyalty example mentioned above.
The blockchain evolution — scalability and IBC
The blockchain projects with a declared goal of solving this in part or to the full are the ones, we usually consider the third generation of chains, like Polkadot, Wanchain, AION, ICON, or Cosmos. All of them having another specialization and focus, but they share some common features and functions: generic message bus, decentralized exchange, a usual cryptocurrency, an applications platform. To me, UniChain is remarkably similar, but with an even more mature ecosystem and a significantly higher scalability as a claim.
So the next step is to bring actual applications and technology „on the chain” and link together the existing chains. Through IBC and scalability, it is possible to reach another level in and volume in ecosystem creation through Metcalfe’s Law. In other words, this way one can combine all the involved blockchains network effect. But this is only the beginning. The game changer however is when we can start to talk about efficiency, real world problems, and return on investment in relation with blockchain, just like in business.
Certainly, this kind of operation requires a different level of transaction speed. More user means more transactions and besides the ability checking other chains ledger status, IoT and M2M communication can bring the volume of transactions to another level by moving the decimal significantly.
Return on Innovation
Innovations’ ROI comes very slowly in the picture. When it does, on one hand the exciting world-improving experiment turns into boring excel tables, but also this is the point when the actual realization starts. To bring physical and virtual closer also means to move the technology further on the road from ’may be something big’ to answering existing problems. This involves another new, so called disruptive technologies, while financial impacts of blockchain — on industrial level — can be calculated in the easiest way if we consider it in larger projects, as part of complex industry 4.0 implementation.
With native solutions and depending on the processes involved by implementing blockchain solutions companies running multiple different risks, that as it stands almost impossible to calculate (and so mitigate) cost-related, like development, maintenance, and operational costs and particularly the challenge of business models. Buying blockchain as a service may give us the flexibility only to dive in the minimum depth necessary into the technology and let it do the job for us. This way blockchain can also find its role from the high-level core activity improvement to the low-level approach typically for SMEs is the process automation and company compliance by the implementation smart contracts on the other end.
The crisis created by Covid19 — besides its devastating effect — is offering a rare opportunity. Resilient supply chain is what everybody is looking for now. No question, this is a good opportunity even for conservative thinking companies to reorganize their supply chain and rely more on the technology than the promise of sometimes not even trusted partners that the last order is shipped.
Certainly, i4.0 is nothing else but a tag or buzzword that can mean the same phenomenon as digitalization. However, as digitization is about creating a smart factory or smart unit, the current trend is about how to link them together, transforming them to smart nodes of a smart network, and blockchain should be a major player by bringing accountability in picture.
Industry 4.0 is still hard to define and considered only a buzzword by most, but one can slowly draw the trend line if we link the dots — backwards, like Steve Jobs warned us so wisely: continued computing speed increase and size drop, what is usually referred as Moore’s law combined with advanced materials brings the sensor technology which together with radio and wireless networks and standards, like WiFi, Bluetooth, 5G and 6G ensures the spread of Internet of Things creates Big Data, which opens the way for machine learning and Artificial Intelligence. Collaborative and Mobile Robotics, self-driving capability — air/land/water, Virtual Reality (VR), Additive Manufacturing — 3D printing, and other can build on them by continuing the trend. All these transactions require secure recording, in other words: Blockchain.
A standalone application solving actual and real-world problem is also an opportunity and a reason for everyday people to turn towards blockchain, while a functioning ecosystem of different applications in place makes that the new reality. According to Jeremy Rifkin, mankind has an ambivalent relationship with energy and water: both are abundant and free, and yet we manage them in an unsustainable and expensive way. What more than this, one need significant water to generate energy and vice versa. He claims what we need is only a solar panel and a cistern to every roof to solve this for good. On one hand, this is a good example and a nice summary of the efficiency and the real-world problem part and brings us to problem of ROI on the other.
In short-term the lack of understanding is a critical factor why we did not see more blockchain and education is the key. In mid-term, validation and not enough users need to be solved with bridging the communication and data exchange between chains, while final solution is a thriving ecosystem including industrial level application of new technologies and involving solutions of other blockchains, which requests a much higher than currently available transaction speed to cover pan-blockchain and M2M communications. The current industrial trends guarantee the demand for a secure way for registering transactions and pave the way for blockchain. Relative number of users (available for each project) will increase drastically — even if not in absolute value for the begin — thanks to inter blockchain communication. This requires a higher transaction speed, but if given, it is much easier to create functioning ecosystems.
The new generation of blockchains and the approach UniChain is also taking can help tackling most of the challenges by offering a readymade blockchain solution for growing number of use cases and offering a flexible opportunity to create your own application on its platform. This creates a positive loop for an ecosystem to grow by linking together existing on chain solutions and new technologies and bringing in many users and offers the necessary speed for transactions. The approach of new generation blockchains are similar, but scalability provided by UniChain, however is unique.