On the first morning of the Consensus 2016: Making Blockchain Real event by Coindesk, an expert panel weighed in on the enterprise implications of the blockchain. For Bitcoin purists who hoped to topple bloated financial institutions, a panel focused on how enterprises can adapt the public blockchain to private blockchains running on private clouds is probably the end times - a crypto-anarchists' nightmare.
At Consensus 2016, the blockchain's corporate and business-altering potential is being seriously weighed. Numerous attendees noted that this year's event, with the high-visibility presence of the likes of Microsoft, IBM, Ernst and Young, Cognizant, and the ubiquitous Deloitte - to name a few - shows the enterprise investment blockchain is getting.
But is that traction reflected in real world projects? That's a key question I'm still pursuing at this event. The big services firms told me there are many enterprise blockchain projects underway, but almost all of them are in the pilot or proof of concept phase. It's tough to get these firms to name the specific customers involved - that's just the phase we're in. But the use cases are emerging, which brings us to the panel.
Before I dig in, if you're curious about the blockchain itself, Den and Phil have both posted takes on diginomica. The panel discussed a variety of blockchains. The Blockchain, with a capital "B" you could say, is the blockchain underpinning Bitcoin, but it's not the only blockchain. On Wikipedia, blockchain is defined as "A distributed database that maintains a continuously-growing list of data records hardened against tampering and revision." That's the blockchain the panelists are referring to.
There are some unique virtues of such a database - a different set of pros and cons if you will - related to the time stamps on each data block in the chain. One enterprise obsession: how can the blockchain ease regulatory burdens with difficult-to-validate data?
How disruptive is the blockchain?
Just how disruptive is this new technology? That's the question Microsoft - which sponsored and facilitated the panel - used to kick things off. Caitlin Long, formerly of Morgan Stanley, who spent the past two years "evangelizing" blockchain applications, sees a big impact coming. She pointed to the Consensus 2016 keynote announcement from the Governor of Delaware:
I do think this is an extraordinarily disruptive... Delaware is where a lot of the filings are recorded for asset-based lending; things like mortgages, automobile loans. Any sort of asset-based lending, there’s a secured filing that is done against that asset... By the way, that’s going to happen within the next month, to give you some sense of the timing. The ability to record the leans on a blockchain, it just immediately, massively improves the administration of asset-based lending.
Long's view, informed by former Morgan Stanley colleagues and researchers, is that the blockchain could result in the reduction of not 5 or 10 percent, but 30-50 percent cost reductions in the financial industry's back office. She considers a recent estimate of 18-22 billion in those cost savings by 2022 as "low."
What processes should companies be targeting with the blockchain?
During this one hour panel, which took place in a cozy/smaller meeting room, the panelists suggested these questions as enterprise starting points:
- What processes are bogged down by intermediaries and third parties for validations and approvals?
- What would you do with technology that supports immutable, time stamped, and largely tamper-proof data?
- Are there areas in your business with a rising cost of auditing and compliance?
Panelist Victor Wong, CEO of BlockApps, advises his enterprise clients to think about blockchain as a "database for unique assets." Most of those assets are siloed in existing databases, and not visible across the enterprise. Wong called that database coordination effort a "massive burden" on companies. He sees a reporting and compliance drain that blockchains can alleviate.
Enterprise use cases - financial services and beyond
The panelists reeled off industry headaches that involved "T +" delays in processing time.
David Johnston, Chairman of the Board at Factom Foundation, cited a financial services example:
Mortgages are T + 45. A lot of that is basically due to a lack of trust between institutions. Everybody hires an auditor. They go and they manually re-underwrite the asset. They re-rate it. They do this every time there’s a trade. That’s why it’s T + 45... A lot of these financial institutions have dozens of different systems of record, different databases that don’t talk to each other, that don’t trust each other.
Bryan Smith, Chief Data Scientist at PokitDok, shared one a health care scenario:
In the T + X settlement time: who in the room has received a bill for a medical procedure, 90-120 days after? Medical claims processing is a huge market opportunity for this as well. These settlement times, they’re costing providers between 20 and 40 percent overhead. Even cutting this down to a 30-day cycle will be a huge win for those folks.
Wong's company has worked on a range of use cases, including finance, energy, healthcare, Internet of Things, and identity projects (digital identity verification looks like a sneaky big blockchain use case - this was a big backchannel theme at the conference). Add HR to the mix: Colony, an employment startup, won the Startup Showcase competition (and a $10,000 prize) at Consensus 2016 for their decentralized employment solution that connects companies to freelancers globally.
Obstacles to blockchain adoption - regulation stands out
Surprisingly, technical challenges such as scalability - a matter of serious debate in the Bitcoin community right now - were not considered the biggest blockers to enterprise adoption. Privacy of data, another obvious roadblock, can be mitigated by private blockchains.
So what are the impediments? One biggie: the vagueness and inadequacy of regulations. Smith, whose company is building HIPPA-compliant blockchain solutions, said:
Is an implementation of an EHR on a public blockchain HIPPA-compliant? Most certainly not. Does that mean we can’t use some version of a private blockchain and maintain HIPPA-compliance? Yes, we probably can.
Smith bemoaned the state of innovation-stifling regulation:
HIPPA was designed to try and bring innovation and adoption of the innovative technologies to healthcare, and it’s done effectively the opposite. We will have to deal with that at some point.
Long believes these regulatory issues can be overcome with better guidance:
In the financial industry, one of the things that would be helpful is if the regulators would actually specify that this is okay. We heard a little about regulation this morning, the whole prescriptive regulation versus licensing regulation. New York for example, with the licensing route but New Jersey is going the prescriptive route. The prescriptive route being, "Here’s what you need to do, you just have to register with us and we’ll let you go." I think a lot of big institutions in particular are averse to talking a lot of regulatory risks and having their hands slapped.
This regulatory vagueness holds everyone back. Long:
For the government to come out, the regulators to come out and say that the software providers are not themselves regulated financial institutions, that would really be helpful.
Johnston argued that blockchain is a "regulators dream":
The really interesting aspect is blockchain is a regulator’s dream. Here’s an immutable ledger that is time-stamped and tamper-proof. What would you like to record with that?
He sees regulatory roadblocks diminishing:
It’s only an a matter of time... A lot of them are starting to understand this could be a useful tool.
It's early days for enterprise adoption. But the investment in blockchain by enterprise players is not insignificant. During my backchannel conversations with technology and services companies, it was made clear to me that blockchain is not perceived as an experiment, but an important part of go-to-market. Certainly Microsoft is serious; plenty of folks told me they use Azure to stand up blockchain services (though they aren't the only player in that game).
Blockchain clearly has the potential to ease enterprise pains. When we talk silos, unvalidated data, compliance and regulatory headaches - these are not fantastical notions. Yes, blockchain could have scale issues, but the panel felt those can be addressed. Is blockchain slower than some high performance enterprise databases? Yes, but Victor Wong says if you're obsessing over that, you're overlooking an issue of data trust these databases don't address. Wong added:
Most people are looking at this incorrectly, where they’re comparing blockchains to the most scalable, high scaling systems. That’s actually not the correct comparison for scalability. What you have to compare it to is human beings organizing data and trying to match up reports. That’s what blockchains are competing against, is this type of auditing.
One beef I heard from journalists: enterprise blockchain talk is too often about helping financial institutions be more efficient. If that's all there is to it, then blockchain is just a big ol' can of WD40. Yes, 40 percent administrative savings sounds great - though probably not to those currently employed to do that administrating. But where is the business model change? Untapped markets? Improving the quality of life for you and me? I doubt the panelists would disagree.
Another missing piece: blockchain's potential for developing economies, such as banking for the unbanked, micro-business enablement and so forth. I'll seek out more interviews on that today.