8

Looking Ahead: What Does the Future Hold?

Blockchain is here … for good.

—Jerry Cuomo

Reading up to this point, we hope you are eager to help your organization become a blockchain business. With blockchain, we can reimagine many of the world’s most fundamental business processes and open the door to new styles of digital interactions that we have yet to imagine. Today, blockchain is fulfilling its potential of vastly reducing the cost and complexity of getting things done across industries and government. Blockchain is certainly here for good. The term “for good” has a double meaning: It implies that blockchain is not a passing fad, and it suggests that blockchain is providing a foundation of trust that is delivering a social good—namely, significantly reducing the various pestilences afflicting digital business, including counterfeiting, digital surveillance, and identity theft.

So far, we have seen only the beginning of blockchain’s transformative power for business. As we look ahead to the future, we will see blockchain effects multiply. Specifically, networks will come together in a way that unlocks their power across ecosystems and industries, unleashing the “network of network” effect. We will also see blockchain at the nexus of emerging technologies like artificial intelligence (AI), the Internet of Things (IoT), and quantum computing. In these cases, blockchain will accelerate the adoption of these technologies by adding the missing element of trust, while also benefiting from the distinct capabilities that these technologies deliver. In this final chapter, we will examine these dual effects.

Looking beyond today’s implementations, we see a future in which blockchain technologies enable a network of networks, creating additional value and further reimagining the way economies, governments, corporations, and more work together. A blockchain economy emerges when an organization’s blockchain network is represented by a “web” of interconnected networks. This kind of intertwined architecture would allow an organization to connect and transact with multiple solutions, going beyond the bounds of a single network, and opening up a market of interoperability across solutions. Essentially, an organization could have one application or entry point and one peer (ledger), instead of multiple iterations of these elements, to engage with every network and solution that is relevant to its business.

To put the potential impact of a blockchain network of networks into perspective, let’s look at an example involving a fictional company called Global Produce Supply (GPS). GPS is a produce distribution and wholesale business. For GPS to be successful when engaging with its end customers and partners, the company must ensure the safety and quality of its produce, streamline its shipping/distribution processes, and make and receive timely payments vis-à-vis its partners. To help meet these expectations, GPS has joined three different blockchain networks—one for food quality and safety, one for shipping, and one for trade financing. Each of these blockchain solutions is individually bringing value to GPS, but they are disparate entities and do not have the capability to interoperate.

Or do they? Think about the value that could be created by connecting and interoperating these networks, forming GPS’s network of networks. The company could use one solution (made up of all three networks) to ensure the quality and safety of its produce; bring trust, traceability, and transparency to the associated shipment process; and use the trade finance network to conduct financial transactions with its partners. This would potentially create an additional layer of value on top of the existing value already created by blockchain.

Today, individual blockchain solutions are changing industries in unprecedented ways. When blockchain networks and solutions begin to interoperate as suggested in the GPS example, however, they could unlock additional value beyond the capabilities of today’s networks.

On September 14, 2018, IBM and HACERA took one of the first—but necessary—steps toward achieving this objective. IBM joined HACERA’s Unbounded Registry, which serves as a sort of “yellow pages” directory, enabling companies to discover and participate in existing blockchain networks and solutions.¹ Available networks and solutions listed in the registry are built on a variety of blockchain frameworks, including Hyperledger Fabric, Ethereum Quorum, R3 Corda, Stellar, and more. The registry continues to add to its growing base of participants, including vendors such as IBM, Oracle, Microsoft, and consortia and developers from all around the globe. We are so happy that the Unbounded Registry is helping more participants to collaborate openly, through permissioned and nonpermissioned blockchains. We keep encouraging blockchain participants to join, get listed, and collaborate using this registry.

The next step in this process is to continue unlocking the power of existing blockchain technologies and begin to interconnect or layer them in a multilingual manner. To maximize value from blockchain solutions, each organization should consider how its individual blockchain solutions might be interconnected. Fortunately, we don’t have to reinvent the wheel.

Let’s consider how this is possible with blockchain technology today; more specifically, let’s look at Hyperledger Fabric–based networks. We think the peer and channel components of a Fabric network are where the true power of a network of networks can be realized. The peer is where distributed ledgers reside, while the channels are private sub-networks between members. Organizations might potentially use their peer to connect into multiple blockchain networks via channels, thereby unlocking the power of the peer. This significantly reduces the complexity and optimizes an organization’s interactions with different blockchain networks.

In addition to taking full advantage of the power of the Fabric peer, we can begin embedding multilingual smart contract capabilities in existing blockchain technologies. Notably, some blockchain frameworks have modular architectures, which enable them to support a wide variety of languages for writing smart contracts. For example, networks built on Hyperledger Fabric have the ability to use Ethereum (EVM/Solidity) smart contracts. Therefore, a solution containing smart contracts written in Solidity can be available to users of these networks. These capabilities will continue to evolve, especially since the partnership announcement made by Hyperledger and the Enterprise Ethereum Alliance on October 1, 2018.² This collaboration represents a major step forward for the entire blockchain community.

Finally, the component that will bring these blockchain networks and solutions together for an organization is a mash-up application. This is expected to profoundly change the way organizations engage with blockchain networks and solutions by requiring them to interact with just one consistent application programming interface (API), rather than an API for every network. This mash-up application can include a variety of capabilities defined in data models and smart contracts, but at a fundamental level it will serve as the glue that joins various networks together. As an organization continues to expand its use of blockchain, this architecture will allow the enterprise to scale accordingly and innovate at speeds necessary for competing successfully in its industry. Much like cloud platforms have delivered value for application development, blockchain platforms—such as the IBM Blockchain Platform—will facilitate the advancement and delivery of these blockchain mash-up applications.

Organizations plus solutions are where networks form. Today, we are seeing first-order benefits, but many solutions remain siloed. Even so, we are edging closer to a tomorrow where an organization’s ability to interconnect solutions does not restrict the organization and its solutions to a single network. We realized from the start that you cannot do blockchain on your own: You need a vibrant community and ecosystem of like-minded innovators who share the vision of helping to transform the way companies conduct business in the global economy. Blockchain technology is just beginning to scratch the surface of its potential; however, if we design blockchain frameworks and solutions to interconnect, we can unlock the full power of a blockchain network of networks—thereby forming the blockchain economy.

Today, AI is for all intents and purposes a centralized process. An end user must have extreme faith in the central authority to produce a trusted business outcome. By decentralizing the three key elements of AI—that is, data, models, and analytics—blockchain can deliver the trust and confidence often needed for end users to fully adopt and rely on AI-based business processes.

Let’s explore how blockchain is poised to enrich AI by bringing trust to data, models, and analytics.

Imagine if these AI services could produce a “forensic report,” verified by a third party, to prove to you, beyond a reasonable doubt, how and when businesses are using your data once those are ingested. Imagine further that your data could be used only if you gave permission to do so.

A blockchain ledger can be used as a digital rights management system, allowing your data to be “licensed” to the AI provider under your terms, conditions, and duration. The ledger would act as an access management system storing the proofs and permission by which a business can access and use the user’s data.

This question-answering system that we build is called a “model,” and this model is created via a process called “training.” The goal of training is to create an accurate model that answers our questions correctly most of the time. Of course, to train a model, we need to collect data to train on—for this example, that could be the color of the fruit (as a wavelength of light) and the sugar content (as a percentage). With blockchain, you can track the provenance of the training data as well as see an audit trail of the evidence that led to the prediction of why a particular fruit is considered an apple versus an orange. A business can also prove that it is not “juicing up” its books by tagging fruit more often as apples, if that is the more expensive of the two fruits.

Massive amounts of data are being produced every second—more data than humans have the ability to assess and use as the basis for drawing conclusions. However, AI applications are capable of assessing large data sets and many variables, while learning about or connecting those variables relevant to its tasks and objectives. For this very reason, AI continues to be adopted in various industries and applications, and we are relying more and more on their outcomes. It is essential, however, that any decisions made by AI are still verified for accuracy by humans. Blockchain can help clarify the provenance, transparency, understanding, and explanations of those outcomes and decisions. If decisions and associated data points are recorded via transactions on a blockchain, the inherent attributes of blockchain will make auditing them much simpler. Blockchain is a key technology that brings trust to transactions in a network; therefore, infusing blockchain into AI decision-making processes could be the element needed to achieve the transparency necessary to fully trust the decisions and outcomes derived from AI.³

With the advancement in IoT, industries are now enabled to capture data, gain insight from the data, and make decisions based on the data. Therefore, there is a lot of “trust” in the information obtained. But the real truth of the matter is, do we really know where these data came from? And should we be making decisions and transacting based on data we cannot validate?

For example, did weather data really originate from a censor in the Atlantic Ocean? Or did the shipping container really not exceed the agreed temperature limit? The IoT use cases are massive, but they all share the same issue with trust.

IoT with blockchain can bring real trust to captured data. The underlying idea is to give devices, at the time of their creation, an identity that can be validated and verified throughout their life cycle with blockchain. There is great potential for IoT systems in blockchain technology capabilities that rely on device identity protocols and reputation systems. With a device identity protocol, each device can have its own blockchain public key and send encrypted challenge and response messages to other devices, thereby ensuring a device remains in control of its identity. In addition, a device with an identity can develop a reputation or history that is tracked by a blockchain.⁴

Smart contracts represent the business logic of a blockchain network. When a transaction is proposed, these smart contracts are autonomously executed within the guidelines set by the network. In IoT networks, smart contracts can play a pivotal role by providing automated coordination and authorization for transactions and interactions. The original idea behind IoT was to surface data and gain actionable insight at the right time. For example, smart homes are a thing of the present and most everything can be connected. In fact, with IoT, when something goes wrong, these IoT devices can even take action—for example, ordering a new part. We need a way to govern the actions taken by these devices, and smart contracts are a great way to do so.⁵

In an ongoing experiment in Brooklyn, New York, a community⁶ is using a blockchain⁷ to record the production of solar energy and enable the purchase of excess renewable energy credits. The device itself has an identity and builds a reputation through its history of records and exchange. Through the blockchain, people can aggregate their purchasing power more easily, share the burden of maintenance, and trust that devices are recording actual solar production.

As IoT continues to evolve and its adoption continues to grow, the ability to autonomously manage devices and actions taken by devices will be essential. Blockchain and smart contracts are positioned well to integrate those capabilities into IoT.

Blockchain is often touted as a technology that is tamper-proof—or at the very least, tamper-resistant. Primarily, this sentiment stems from its reliance on standard cryptographic functions and consensus protocols that guarantee the security of a blockchain. These are relatively secure because breaking them requires huge computing resources, which are not generally available today. And yet the highly touted security of blockchain may have an Achilles’ heel: It will be child’s play for powerful quantum computers to break the kinds of cryptographic protection implemented in existing, conventional blockchain frameworks.

While quantum computers can disrupt blockchain as it exists now, quantum cybersecurity can also provide a solution. Idalia Friedson, quantum computing expert and co-founder of the Hudson Quantum Initiative, suggests that incorporating emerging quantum cybersecurity in three steps can “save blockchain from the fate of other systems made obsolete by new technologies”:

Step 1 involves strengthening existing encryption algorithms by adding in truly random numbers, or so-called quantum keys. Adding quantum keys to blockchain software will provide added security against both a classical computer and a quantum computer.

Step 2 involves developing quantum-resistant algorithms. The U.S. National Institute of Standards and Technology is currently reviewing submissions for these next-generation algorithms. One example, called Lattice cryptography, mathematically has been proven to be resistant to quantum computing attacks. So far, no known algorithms can break this method of encoding data.

Step 3 involves using quantum key distribution hardware to send information from one point to another by encoding data on individual particles. Any attempted hack automatically severs the connection.

The threat posed by quantum computing to blockchain security can be serious, but approaches such as Friedson’s three-step plan to develop and implement quantum keys, quantum-resistant algorithms, and quantum key hardware hold promise for thwarting these challenges. With a little forward thinking today, blockchain can continue to provide the foundation of trust through a tamper-resistant ledger and turn around the threat of quantum computing to actually enhance security to even greater levels.

As you can see, blockchain stands to accelerate the adoption of emerging technologies including AI and IoT by bringing in the missing element of trust. Similarly, blockchain business networks stand to benefit from the integration of these technologies into modern blockchain platforms and applications.

We have only just begun to witness blockchain’s transformative power for business. As we look ahead to the future, we will almost certainly see blockchain effects multiply.

As active members of the blockchain community, industry groups, blockchain technology standards bodies, and thought leaders, we believe that some complex technical issues still remain to be solved, such as privacy, confidentiality, scalability, and a network-centric approach to code and infrastructure management. Ideally, the resolution of these challenges will lead to an economically viable solution with predictable transaction costs. These complex technical issues have a direct impact on the business design of a decentralized or a quasi-decentralized blockchain-powered business network that provides a platform that facilitates co-creation of new value. Ultimately, the business model that runs the business network depends on cost predictability, economic viability, and new value creation, which in turn are based on the emergence of new business models that are amplified by flattened network processing of transactions.

The thematic elements of this book help ensure a cohesive understanding of technology fundamentals and landscapes, business models, governance and risk structuring, and financial models, which sharpen your decision-making criteria. A sound decision-making process can include various financial, market-driven, and industry-specific data that might impact the quality of your decision. The frameworks and rubrics that we present can help you institute a simple, quantifiable, and peer-accepted model that facilitates decision making.

Our experiences led us to include the chapters that discuss risk modeling, risk model frameworks, and project financial models. We provide a framework that enables business leaders to take a methodical approach to understand and quantify risk, which includes the full spectrum of technology risks, compliance risks, and industry-specific risks. Our risk model framework treats risk as an opportunity rather than a limiting factor. This framework focuses on sharing of risk among blockchain members and the resulting opportunity to add to the bottom line, which injects a new perspective into project financial modeling and traditional approaches to governance, risk, and compliance (GRC) frameworks.

You must understand industry-specific innovation and adoption patterns to ensure your organization’s readiness for participating in production-grade, blockchain-powered business networks. We describe the trust divide in the technology landscape section to address the foundation and technology landscape that influences the business models for a chosen use case, which can be a subsegment of an industry. Chapters 3 and 4 provide a solid foundation of technology fundamentals and reveal their lasting impact on business models. The choice matrix we suggest can help business leaders select the best choice of architecture that results from the business design and solution design activities. The investment rubrics we delineate will arm business leaders with a framework to ensure wise and judicious use of enterprise resources, and our proposed risk mitigation tool is intended to ensure that the investment yields milestone objectives at every stage of the project.

Linking technology fundamentals to business models, we take a technology-neutral approach to deciding between permissioned and permissionless networks. To understand the trust divide between these types of networks is to understand the divide between enterprise-driven blockchain technologies, which are inclined toward permissioned blockchain and primarily transformative, and the crypto asset–driven world, which is permissionless and largely in the public blockchain domain, acting as a disruptor to every industry that aspires to employ blockchain to transform and reinvent its operations. Regardless of which side you choose, it is vital for you to employ the tools and frameworks described in this book to understand and classify the motivation and technology advancement of both sides; ultimately, the innovation and resulting reinvention of business models that ensues will lead to new economic values that will change the world.

Beyond the scope and context of the topics covered in this book, it is vital to understand that gaps, inefficiencies, and other limiting aspects of the current centrally managed world versus the complete decentralization of every aspect of business transaction fall along a spectrum. From all our engagements, we have realized that the acceptable path to disruption lies somewhere in between the two extremes, as industries adopt a new model that coexists with their current (centralized) systems. Moving to a completely decentralized or quasi-decentralized model must be a gradual process to mitigate risk and account for the cultural elements of a business network. The path to complete decentralization is not an easy one. The transformational projects in the forms of proofs of concept and pilots that are undertaken by industry leaders and consortia represent an effort to understand the technology, trust, and transactions risks before they transition to a fully decentralized world. The spectrum from centralized to completely decentralized is an interesting one, and innovation is incubating on both sides of the camp.

We hope that this book has been an interesting, informative, and educational journey regarding the business adoption challenges for blockchain technology projects and the overall business perspective regarding the challenges and adoption guidelines. This project has been an interesting one for us because of the rapid pace of changes and evolution in the blockchain technology landscape. The emerging business models and the promise of industry-wide transformation create an exciting arena that is both purposeful and a constant source of energy—which in turn keeps us motivated to continue on the path to understanding the potential of the blockchain technology by innovating and applying that innovation to address the disruption and transformation of industries. This book provides the basics needed for a strong business model foundation and deeper insights into some of the core elements of blockchain business design and its business blueprint.

Chapter 2, “Opportunities and Challenges,” provided an overview of the opportunities that blockchain offers, and the challenges that you must consider to benefit from those opportunities. Blockchain is transformative, presenting new opportunities such as a distributed organizational structure, a trusted business model, and a decentralized ecosystem. Many industries can take advantage of these opportunities, such as banking and financial markets, insurance, healthcare, retail and consumer goods, government, media and entertainment, automotive, and travel and transportation. But with these opportunities come a set of challenges, which include setting the scope of your blockchain network, gathering and using the motivation to build the network, setting up a governance structure to manage the network, and obtaining the technology to make it work on the ground. Although blockchain is a disruptive technology that requires adapting your business as blockchain changes the industry landscape, with the correct scope, motivation, and governance structures in place, you can ride the wave of this changing landscape and do more than survive: You can prosper and gain a competitive advantage in your markets.

You have seen the opportunities and challenges involved in creating a blockchain network, but what is the actual landscape in which you are building that network? Chapter 3, “Understanding the Technology Landscape,” explored the lay of the land and described the environment and technical aspects you can expect to address. In an enterprise blockchain network, you use a permissioned network to ensure that only the people whom you want to be involved in the blockchain network can access it. Chapter 3 also discussed the costs of building the network, which has a superb return on investment if it is correctly implemented, and its expected longevity. Most importantly, you learned about the crypto assets (tokens) that your blockchain generates and ultimately derives value from. These assets must be protected and used to grow the network, which then generates ever-increasing value.

This topic is a critical one to understand. You must have an excellent grasp of all the technical aspects of a blockchain network to ensure that it can easily and quickly adapt to the disruptive forces that it brings. A solid technical base ensures a solid blockchain as it evolves.

To get the most of out of your enterprise blockchain network, you must pick the correct business and technology model for your business and industry. You will want to use a model that provides the most economic incentives to join a blockchain, such as creating more value with the network than you can produce alone, and is best suited to your business and industry. The correct model will also ease the transition into a blockchain network and allow you to take the greatest advantage of blockchain’s disruptive aspects. Among the many possible business models are the joint venture, consortium, new company (NewCo), business ecosystem, build–own–operate (BOO) or founder-led networks, and build–own–operate–transfer (BOOT) or founding consortium networks. All this information and more was described in Chapter 4, “Business of Business Models.”

Next to understanding the technology of blockchain, selecting the model is perhaps the most important decision that you will make in implementing your blockchain. A model that is well suited to your business and industry will be easier to implement and provide the best return on investment (ROI). Conversely, an ill-suited model not only will not produce value, but can actually decrease value. Thus, it is imperative that you find the right fit for the right business.

At this point, you should have a model for your blockchain network and be ready to implement it. The first thing that you need to do is set up a governance structure, which ensures that you and your ecosystem partners have a common vision and goals for the blockchain network. With a governance structure in place, the ecosystem partners will know how their blockchain network is managed. Chapter 5, “Developing a Governance Structure for Blockchain Networks,” described how to set up the governance structure, which addresses industry-specific requirements and ensures a tight linkage between the business model and the technology blueprint. By adopting a common governance structure, all participants adhere to a common set of objectives, fair and equitable use of network resources, and rules of engagement.

Governance ensures that your blockchain network runs smoothly and efficiently and produces the most value. A good governance structure can mean the difference between a mediocre blockchain network and a dominant and profitable one. Thus, in addition to having the correct technology and model for your blockchain, you must have an infrastructure that governs it well.

Creating a blockchain is not a solo effort! To build a successful blockchain, you must gather a team of experts who take on various duties and roles in the creation of the network. You need an enterprise-level team that consists of high-level roles, such as founders, members, operators, and users of the network. Then, you need the folks who are in the trenches and have their hands deeply involved in building the network, such as steering committee members, project managers, blockchain consultants, engineers, and many more roles. All these experts work together by using the concept of interprise synergy, in which each expert is empowered to work as a decentralized authority with a great deal of autonomy within the larger network. Chapter 6, “Building a Team to Drive Blockchain Projects,” described these team members and their roles.

As with picking the correct technology, model, and governance structure, you need to pick the correct people for each role that is part of building a blockchain. Each team member should be an expert in his or her field and have the autonomy and authority to make decisions within the confines of his or her role, but no more. You do not want a team member to come up against another role and disrupt or damage the work of that role.

In the course of reading this book, you learned that many challenges surround the technical complexity of blockchain. One such challenge is the plethora of financial models, investment rubrics, and frameworks (structures that aim to scale blockchain networks with the greatest efficiency) available today. Which do you choose? Chapter 7, “Understanding Financial Models, Investment Rubrics, and Model Risk Frameworks,” provided guidance for deciding which elements are best for your network. Its lessons can help ensure a methodical, quantifiable, and measurable deployment of resources while effectively managing risk, all at scale. With the correct mixture of a strategic approach, business design, financial rubric, GRC frameworks, and access to technology acumen and correct talent, a blockchain-powered business network can transform industries and businesses while being disruptive and immensely profitable.

It’s difficult to manage risk while ensuring the best deployment of your resources if you do not use the correct tools. As you build and implement your blockchain network, you must ensure that your financial models, investment rubrics, and risk frameworks provide the best risk and reward ratio for your business and your industry. Think carefully about which tools to use.

Building a blockchain network is not an easy task, but if you use the knowledge that you gained from reading this book, you can produce a network that can produce social good, facilitate cooperation among businesses and industries that benefit all the participants, and generate immense value for your business. Now is the time to take advantage of this new and radical technology that will change the business landscape for many years to come.

2. Murphy, Colby. “Joining Forces for the Advancement of Blockchain Technologies.” Blockchain Unleashed: IBM Blockchain Blog. IBM Blockchain, 2018. www.ibm.com/blogs/blockchain/2018/10/joining-forces-for-the-advancement-of-blockchain-technologies/.

3. Modex Team. “Combining Blockchain and Artificial Intelligence for a Better Future.” Blog.modex.tech, August 13, 2018. blog.modex.tech/combining-blockchain-and-artificial-intelligence-for-a-better-future-421e97141e60.

4. Lombardo, Hans. “Blockchain Serves as Tool for Human, Product and IoT Device Identity Validation.” Chain of Things. Chain of Things Limited, January 11, 2017. www.chainofthings.com/news/2017/1/11/blockchain-serves-as-tool-for-human-product-and-iot-device-identity-validation.

5. Smartz. “How Blockchain and Smart Contracts Can Impact IoT.” Smartz Platform Blog: Medium, August 21, 2018. medium.com/smartz-blog/howblockchain-and-smart-contracts-can-impact-iot-f9e77ebe02ab.

6. “The Future of Energy Is Local.” Brooklynmicrogrid.com. Brooklyn Microgrid, 2018. brooklynmicrogrid.com/.

7. “The Future of Energy: Blockchain, Transactive Grids, Microgrids, Energy Trading: LO3 Stock, Tokens and Information.” LO3 Energy, 2018. lo3energy.com/.