How IBM Is Driving The Future Of Blockchain

by Greg Satell

How IBM Is Driving The Future Of Blockchain

On Halloween day 2008, a mysterious paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System appeared on a cryptography mailing list. Its author, Satoshi Nakamoto, was a pseudonym and, to this day, no one is absolutely sure of his or her true identity. Nevertheless, the revolution the paper unleashed was all too real.

While the objective of the Bitcoin paper was to establish an alternative currency—a concept that had great resonance in the midst of the global financial crisis—it soon became clear to many that the underlying technology, called blockchain, could be of even greater utility as a distributed database.

It was based on that idea that alternative, open-source blockchain platforms, such as Ethereum and Hyperledger started to appear and IBM saw an opportunity use blockchain as an operating system for data. It’s still early days, but the rough outlines are beginning to take shape and the implications are likely to be just as profound as the Internet itself.

From Point-to-Point to Peer-to-Peer

Everybody who has ever run a business knows how difficult it can be to earn trust. Customers need to trust that you can deliver a reliable product or service and suppliers need to trust that you will pay them. For entrepreneurs and startups especially, building that trust can be expensive and time consuming.

Over the years, we’ve built up an elaborate system of intermediaries to establish trust. Banks facilitate transactions in the financial system, much like courts do in the legal system and real estate brokers do in residential transactions. What IBM saw in blockchain was an opportunity to establish trust without the use of intermediaries and actual improve the transaction environment at the same time.

“The internet was really a point-to-point technology,” Marie Wieck, General Manager of Blockchain at IBM told me. “Remember that email was the first killer app. Even when collaborate on social media or something else, you go through a broker. We see blockchain as a technology that makes good on that early promise and usher in a new era of peer to peer information.”

“Point-to-point tends to work in linear processes, which limits visibility You see the people in front of you and the people behind you, but don’t see much beyond that,” she continued. “Peer-to-Peer allows you to actively collaborate with entire ecosystem. We saw that as an enormous opportunity for our customers.”

Addressing Technology Gaps

While the potential of blockchain as a distributed, peer-to-peer data structure was exciting, there were a number of technology gaps that needed to be addressed before practical applications could be built on top of it. First, and most obviously, any blockchain network would need to be private and fully secure, meaning that privacy would be maintained even if there was careless or malicious activity.

There were also concerns about accountability. The enterprises on the blockchain platform couldn’t be anonymous, as they often were in the Bitcoin environment. Also, an enterprise blockchain would need to have high standards for performance, meaning that it would need to be able to process thousands of transactions with little or no latency.

To help tackle these challenges, IBM helped, along with other tech giants such as Intel and Cisco, to establish the Hyperledger project that, unlike Bitcoin and Etherium, would be explicitly designed for enterprises. Because Hyperledger is open source and has broad industry support, it can better serve as an industry standard than it could if it was a proprietary product.

Another advantage of Hyperledger is that instead than using a proof-of-work system for verification, it employs a permissioned blockchain in which each participant is identified and known—and therefore accountable — to the others in the blockchain network. Essentially this verifies the members before transactions take place, much like Global Entry or TSA Pre does to speed airline security checks.

Moving From Potential To Practical Applications For Enterprises

Developing technology is one thing, building a business is another. In speaking with executives at IBM, it became clear that they see three key areas of opportunity: Financial services, identity and supply chain.

For example, in financial services, it has created the IBM Blockchain World Wire, which facilitates cross-border payments. Typically, a transaction that crosses borders needs to go through a number of intermediaries, which takes time and adds costs. Blockchain technology allows these transactions to take place in near real-time and at far lesser cost.

It is also working with SecureKey  to develop a digital identity system in Canada. The system is designed to allow consumers to develop digital identities that they can control. For example, if you have already verified your identity with say, a bank, then you can then use that verification to help you get a new apartment or create a new account with a utility.

But perhaps the greatest opportunity for blockchain technology is in helping to streamline the supply chain. In fact, a 2013 study by the World Economic Forum found that reducing back-office friction in international trade could increase GDP by nearly 5%. IBM has two major efforts in this area. It partnered with Maersk to create TradeLens, which aims to digitize global shipping and created Food Trust that focuses on agricultural products.

While all of the efforts mentioned above should be considered nascent and it is unclear whether any of them will ultimately succeed, they do point to where blockchain is going—toward creating a new, peer-to-peer data infrastructure that eliminates bottlenecks and increases transparency.

The Future

To understand where blockchain is going, it’s helpful to look back to the evolution of the Internet. At first, it was merely a network that connected research labs to reduce friction and increase collaboration. Later, it became public and “walled garden” services such as CompuServe and America Online connected ordinary people to larger networks of information.

Yet the real value was unlocked when the Internet started connecting networks together That’s what created the opportunity to build completely new business models such as Amazon, Google and Facebook. It was the businesses created on top of the infrastructure, rather than the infrastructure itself, that truly changed the world.

Blockchain today is probably in a stage similar to that of the “walled gardens” of the Internet. The types of networks that IBM has set up tend to focus on a single function, such as transferring money, validating identity or streamlining supply chains. That’s useful, of course, but far greater value can be unleashed when we are able to combine those communities into a single marketplace.

“I think much like with the Internet was able to organize separate databases into an interlocking, networked marketplace, we see the potential to link separate blockchains together into a greater ecosystem that will lead to new business models,” IBM’s Wieck says.  “It will allow people that aren’t currently able to collaborate effectively to partner and create new value through communities of innovation.”

When Bitcoin first emerged many assumed that it would evolve into a new layer to the financial system. What’s taking shape now is far more important profound—a new layer to the Internet, which will be far more secure and far more flexible than what we have today. Much like the first Internet, it will evolve into a platform that will support new business models—and possibly entirely new industries—for decades to come.

 
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Greg SatellGreg Satell is a popular author, keynote speaker, and trusted adviser whose new book, Cascades: How to Create a Movement that Drives Transformational Change, will be published by McGraw-Hill in April, 2019. His previous effort, Mapping Innovation, was selected as one of the best business books of 2017. You can learn more about Greg on his website, GregSatell.com and follow him on Twitter @DigitalTonto.

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