Why firms are cautious about blockchain
On 22 November, Axis Bank became the first financial institution in India to launch instant international payment services using Ripple’s enterprise blockchain solution. Prior to that, on 10 November, Hewlett Packard Enterprise Co. introduced blockchain-as-a-service that can help companies “deploy blockchain solutions quickly and easily”. And earlier in the same month, Primechain Technologies Pvt. Ltd, which operates a blockchain community of banks called BankChain, announced that the State Bank of India is working towards a “safer, more secure banking system in India through its implementation of blockchain solutions with BankChain and Intel”.
These are just a few examples in the growing pile of reports about the potential of blockchain—the distributed ledger technology behind cryptocurrencies such as Bitcoin. Now, increasingly, blockchain is finding traction among various industries. Research firm Gartner Inc. estimates that blockchain can generate business value worth $176 billion by 2025.
Among the big tech firms that have invested in blockchain are International Business Machines Corp., Intel Corp., Microsoft Corp. and Google Inc. Also, there are specialist firms seeking to capitalize on the opportunities emerging from it. “We realized that different industries (financial, insurance, supply chain and others) wanted to try their hand at blockchain,” said Akash Gaurav, founder and chief executive officer of one such Indian firm, Auxesis Services and Technologies Pvt. Ltd, in a recent interview.
While the buzz around blockchain is high, said Gaurav, it is still evolving (it is in its second version currently) and there are challenges to its adoption.
“It is true that there (is) a lot of PoCs (proof of concept) in different industries, but nothing is moving beyond that stage into production,” he said. The problems, in his view, are industry-specific. “For instance, Indian banks tried blockchain in trade finance in 2016 and then people never talked about it. There were challenges at the production level in terms of maintaining privacy and confidentiality of data,” averred Gaurav.
“Blockchain is not as evolved as other mature technologies such as the Java programming language or the Oracle database,” he added. While mature technologies can be easily deployed in any industry, it is a different situation with blockchain, as it “involves many protocols related to specific industries”.
At the heart of the issue is that blockchain was designed with a peer-to-peer, cryptocurrency environment in mind. “Now, what we are doing is taking that blockchain infrastructure and putting business logic on top of it so that it can be used in multiple industries,” explained Gaurav.
The challenges of implementing blockchain for enterprises, said Gaurav, include companies’ specific requirements, different data standards and the nascent nature of the technology. For instance, while the banks want to have the benefits of transparency, security and audit trail offered by blockchain, they “do not want their competitors to see their data” (something that blockchain allows in its current form). “So they want to control certain things,” he said.
To address this, Auxesis, on its part, has created a basic blockchain fabric, Auxledger. “For each industry, we study its regulatory needs, its business processes and its data standards to build a (software) plug-in for that industry,” he added. Using that plug-in, that particular industry can implement blockchain smoothly. Thus far, Auxesis has developed two plug-ins: one for identity management for the government sector and another for the financial industry.
A blockchain network must follow certain protocols. For instance, the consensus protocol by which a certain proportion of participants in the whole blockchain must agree to the modifications made to the contracts (called smart contracts, as they execute automatically) for those modifications to become functional.
“For example, in the Ethereum smart contracts, a contract must be executed by every party in the network. This vision was against having private contracts. But in a banking scenario, you have to have private contracts,” said Gaurav. The idea of having private contracts in a blockchain is also referred to as a “permissioned blockchain”. In January this year for instance, Bajaj Electricals Ltd put in place such a permissioned blockchain to pay its suppliers.
Gaurav said that there are blockchain frameworks such as R3 Corda that can take care of confidential data so that all the transactions of the participants in a private blockchain are not visible to each other.
The growing capabilities of blockchain and efforts of firms such as Auxesis and Cateina Technologies Pvt. Ltd (which worked on Bajaj Electricals blockchain) are making organizations open up to experimenting with blockchain.
Talking about his current projects, Gaurav said that Auxesis has partnered with two state governments for implementing the Auxledger identity management software that is “layered on Aadhaar”: “We have onboarded 53 million identities on our platform. Using blockchain, the identity data of people can be made even more secure so that others cannot easily access it. This can be done through layered access rights and encryption. The identity management plug-in can also update any changes made to Aadhaar.”
Further, as a pilot, Auxesis is working on a direct benefit programme for one of the two state governments. “It is an end-to-end project which involves writing business logic, capturing data and making the data immutable, sending out communication alerts, etc.,” said Gaurav, declining to name the state.
Another PoC developed by Auxesis for a pharma firm involved the use of humidity and temperature sensors on transport vehicles carrying heat-sensitive drugs that could spoil during distribution.
“To detect this, we used the sensors connected to a microcontroller, which is a part of the blockchain network. So if the temperature varies from the required range by a certain amount for, say, more than 10 minutes, a smart contract gets executed in the blockchain and the involved parties to the contract get notified,” he explained. The benefit of using blockchain combined with sensors (which would typically be part of an internet of things network maintained by another firm) is that if the goods are spoiled, it is easy to find out who is responsible and settle the claim with the party that should bear the cost.
Not everyone is convinced that blockchain will revolutionize businesses anytime soon. In an article titled The truth about blockchain, Harvard Business School professors Marco Iansiti and Karim Lakhani noted, “... Our experience studying technological innovation tells us that if there’s to be a blockchain revolution, many barriers—technological, governance, organizational, and even societal—will have to fall. It would be a mistake to rush headlong into blockchain innovation without understanding how it is likely to take hold.”
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