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Blockchain for industrial enterprises: Hype, reality, obstacles and outlook

In a recent webinar, we explored the hype around blockchain, industrial use cases outside of financial services and obstacles to enterprise deployments of the technology. There is certainly no dearth of hype surrounding blockchain, which is causing many Lux clients to scramble and wonder, “How will blockchain impact my business?” and “Do I need a blockchain strategy today?”

The blockchain bubble follows many of the typical tech hype trends: funding is soaring, which is always an attention grabber. The total historical funding for bitcoin and blockchain startups cleared $1 billion in 2016 (interestingly, pure-play blockchain investments surpassed bitcoin investments). A few startups did huge raises, including Blockstream ($55 million Series A) and SETL ($43 million angel). Additionally, several venture funds have launched dedicated solely to investing in blockchain technologies (including Blockchain Capital, Tally Capital and Pantera Capital).

To add to the hype and increase the anxiety of enterprise stakeholders, many large organizations announced blockchain initiatives that are a far cry from historic uses of the technology. German energy giant RWE is testing blockchain for electric-vehicle charging and peer-to-peer energy trading; meanwhile the U.S. Food and Drug Administration is testing blockchain for efficiency and security in healthcare data exchanges. These esoteric experiments from major organizations are turning heads, forcing executives to investigate the potential for blockchain in industries where nobody expected blockchain to see the light of day.

In the aforementioned webinar, we explored case studies of deployments in industrial verticals (outside of finance), in order to understand what novel solutions look like and how they deliver value:

  • Skuchain executes blockchain-based international trade with smart contracts and IoT. Towards the end of 2016, blockchain start-up Skuchain completed a proof of concept (POC) that helped digitize and automate archaic international trade processes. Leveraging the Skuchain platform, Wells Fargo and Commonwealth Bank of Australia were able to digitally develop a letter of credit on behalf of the buyer and seller, and then trigger the payment for the shipment via smart contract integration with an IoT solution for tracking shipping containers. For this POC, the main focus was to prove the functionality of the technology, rather than to pin down specific cost savings and efficiency improvements — so it is not clear exactly what return on investment would look like for this sort of deployment, but the participants all expect there will be savings on back-end operations as this sort of solution scales.
  • New York microgrid enables peer-to-peer energy trading via blockchain framework. TransActive Grid, a joint venture between cleantech consultancy LO3 Energy and blockchain solution developer Consensys Systems, is a startup focused on applying the blockchain framework to energy trading. The group is conducting a POC on a community microgrid project (Brooklyn Microgrid); this will allow neighbors to sell and trade the energy they generate. In the initial deployment, only energy producing customers have smart meters, and surplus generation is accounted for as energy credits that can be traded with microgrid members. In later phases of the project, TransActive Grid intends to expand the deployment of smart meters to energy consumers as well, and claims that this will enable direct peer-to-peer transactions without the need for an energy credits market.
  • IBM helps Walmart leverage blockchain to improve food safety outcomes. In late 2016, Walmart began testing blockchain’s capabilities to improve food safety across its complex global food supply chain. The initial POC is tracking two products: one packaged produce item in the U.S. and pork in China. Using blockchain will enable the array of suppliers and distributors across the supply chain to record information on products in one central repository, rather than across a web of siloed, proprietary systems. In theory, this will increase transparency and create a permanent, traceable record of information as products move from supplier farms to Walmart shelves. In both the U.S. and China, IBM will be integrating a blockchain solution tailored to the specific food safety application, building on the open source modules of the Hyperledger Project.

These POCs share several themes: they are all built on the three major blockchains, which are bitcoin, Ethereum and Hyperledger — most blockchain projects are developed on these three core blockchain platforms. A major goal for all three POCs is to increase transparency in areas where transparency is especially important. Another key theme is that each POC applies blockchain to specific industry pains where other approaches have failed (including digitizing international trade processes, cutting out middlemen from electricity transactions and improving response time for food safety issues). Last, it is important to note that all of these POCs, and nearly all POCs outside of finance, are experiments — none of these use cases has proven the ability to deliver ROI through application of blockchain technologies.

While the use of blockchain outside of finance is still largely experimental, we believe that the applications explored above (supply chain, power and food/agriculture) are strong fits for blockchain at industrial enterprises. We expect these industrial use cases to be among the first where blockchain begins to deliver real ROI. That said, blockchain still faces several obstacles before it will achieve broad enterprise adoption: there are precious few blockchain experts, smart contracts can be pretty stupid, enterprises struggle to be comfortable with cryptocurrencies, use of blockchain flies in the face of regulation in many industries, and stakeholders are beginning to take a “blockchain-first” approach.

“Blockchain-first” is a dangerous mentality. Blockchain is a promising development for many industrial verticals, one that will provide many valuable solutions, but it is dangerous for stakeholders to take a blockchain-first approach, one in which they throw blockchain at everything — the right approach is to start with problems and apply blockchain where other methods have failed and where blockchain makes the most sense. This is a common risk whenever new technologies garner hype and press, and many venture groups and industry stakeholders will waste precious time and money getting sucked into inappropriate blockchain projects.

For more information, visit our webinar “Blockchain Beyond Finance: Power, Supply Chain, IoT, & Much More.”

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