“This paper was originally published in The Management Accountant, Volume 53, No. 6, June 2018 and is now being reprinted with the permission of the Institute of Cost Accountants of India.”
Advancements in digital technologies in Industry 4.0 era have started bringin in quantum leaps in transformational impacts on systems and processes for value deliveries to business stakeholders. It has already shown potentials for enormous minimisation of value destructions and surfeit of ‘innoventive’ value creations. Some of these technologies will cause shift to higher trajectory of quality and speed for multifaceted service deliveries by any government both at federal and county levels.
Blockchain is one of the most welcomed technologies of this new era. Digital scientists are categorising it as a medium to high impact creating technology. But the present author’s divination is that it has power of creating ground breaking transformational impacts. It has immense potential to benefit people at the lower strata of society, more than what www has rendered in the immediate preceding era.
This paper has been written in sequel to the present author’s first paper1 on Blockchain, which was published in February 2018 issue of this journal. Objectives are to demystify myths and perceptions about Blockchain, take a brief account of its applications in solution building, humane dimensions, imperatives for digital scientists, and regulatory interventions that are necessary to achieve success in applications of this technology. The present author expects readers, if possible, to read his earlier paper for the benefits of continuity.
Even after extensive research, one is hardly able to hunt out hard facts and authentic literatures on Blockchain as the technology has started evolving. However, news items, viewpoints of IT and legal professionals, blogs by academicians and opinion makers, etc. can be mined out from cyberspace. Any author on Blockchain, therefore, does not have options but to refer those.
The present author, however, has the benefit of interacting with many ‘startupians’, first generation entrepreneurs, digital scientists from world class MNCs, academicians, senior business professionals and opinion makers who are directly / indirectly associated with Blockchain applications. He has viewed their presentations, interacted in one-to-one meetings in events, e. g., National Blockchain Conference, Vizag, held in October 2017, World Block Chain Summits, in Dubai and Moscow held in October 2017 and April 2018 respectively. Desk-top researches had to be conducted to explore information and data points for his own inaugural keynote presentations, as the Chairperson of those two summits and moderating three panel discussion sessions. This paper is being presented with researched out information and viewpoints gathered during interactions with those professionals.
Genesis of Blockchain
Ideation and the first use of this technology can be traced after the global financial crisis of 2008. In his article2 Bernard Marr wrote that when “Satoshi Nakamoto, whose true identity is still unknown, released the whitepaper Bitcoin: A Peer to Peer Electronic Cash System in 2008 that described a ‘purely peer-to-peer version of electronic cash’ known as Bitcoin, blockchain technology made its public debut.” Nakamoto’s seminal idea is based on a ‘chain of digital signatures’. There are different views whether Nakamoto was one person or the pseudo name of a group of professionals who initiated Distributed Ledger Technology (DLT). In subsequent sections DLT and Blockchain has synonymously been used.
Tim Harvey3 observed that, “…… However, a March Newsweek article raised the possibility that Nakamoto is a very real recluse living in Temple City, Calif. See “The Face Behind Bitcoin,” (http://tinyurl.com/mhcq3ok) by Leah McGrath Goodman, Newsweek, March 6, 2014…..” Objective of this paper is not to indulge into such controversies. Keeping aside those, Bitcoin was thus born in 2009, followed by other crypto currencies (CCs). Bitcoin and CCs are being touted to be another asset class for investments and safe medium for conducting financial transactions.
Core of Blockchain
Essentially Blockchain is a cryptographically enabled computing system with distributed ledgers maintained in and accessible from the computing device of each participating user. Every user must log into the platform from his / her device, called a Node in the whole chain, using both his / her private key and public key. Any user can view earlier transactions by linking with the public keys of the initiating participants. He / she can also initiate a fresh transaction or one linking with any previous transaction. No third-party authentication is required since every user accepts the terms and conductions of the ‘Smart Contract’ embedded in the platform. No user can delete / modify earlier transactions of any user(s) in any manner and under any circumstances.
Since every two-key sign-in and all transactions are cryptographed and simultaneously maintained in distributed ledgers of each Node, it is almost impossible to be hacked or infiltrated with a malware. The hacker must apply a superfast algorithmic tool, beating all developed so far, and use a computer with supersonic speed to decrypt those entries before hacking. Information privacy and safety will further be enhanced with implementation of ‘General Data Protection Regulation’ by the EU from May 25, 2018. In India, a similar Bill is in advanced stage of drafting by the Justice B. N. Shrikirshna Committee.
From around 2014 other digital scientists explored more and started developing private blockchains for alternative applications. Marr’s3 observed that Vitalik Buterin, one of the co-founders of Ethereum and contributors to Bitcoin codebase, wanted to remove this technology’s limitation of only dealing with a digital currency. He launched in 2015 the second public Blockchain called Ethereum, which could handle different types of transactions with the help of a built-in ‘Smart Contract’. This version of Ethereum attracted attentions of multinational corporations like Microsoft, BBVA and UBS, because of its vast business potentials, powerful ability to disrupt legacy systems and ushering in a new era.
Demystification of Blockchain vs. Cryptocurrency
Such a genesis of digital currencies, and because transactions are conducted using a cryptography enabled DLT platform, this technology in common parlance has become near cent percent synonymous to crypto currency. This perception is perhaps because a common man is yet to observe and experience widely used applications of this new technology. Readers will recall that internet was initially equal to email only till hundreds of other applications were developed. Let this be clear that Blockchain is not a crypto currency and a crypto currency is not equal to Blockchain.
A section of experts has attributed certain reported frauds concerning CCs to the failure of DTL. Many have concluded that Blockchain cannot prevent frauds like any other technology. Let this first be clearly understood that the meteoric rise and extreme volatilities in prices of Bitcoin and other CCs are not due to the underlying DLT but mainly due to interplay of factors, viz., demand, supply, human greed and many others influencing business and financial ecosystem.
Again, the reported frauds related to Bitcoin, etc. are not the frauds committed by infiltrating into the DLT. Human gluttony and ulterior motives have played their forceful roles like in any other cases of economic offences. Such frauds have mostly occurred in the course of CCs being traded in exchanges operated by separate entities. Most of the buyers and sellers do not directly access the underlying DLT platform from their respective Nodes. Their brokers in those exchanges do.
Readers will recall the newspaper item4 that US Justice Department has been reported to have started probe into suspected Bitcoin price manipulation. It will be worthwhile to quote a portion from the report – “Authorities worry that virtual currencies are susceptible to fraud for multiple reasons: scepticism, that all exchanges are actively pursuing cheaters, wild price swings that could make it easy to push valuations around and a lack of regulations like the ones that govern stocks and other assets.”
Blockchain – The Power House of Industry 4.0
Solution architecture for dealing with business operations can be developed using an in-house or external vendor’s Blockchain dovetailing with digital transformation strategy. External DLT platforms are available based on opensource, permissioned, or hybrid arrangements. Readers may know more about eight such public Blockchains, viz, Ethereum, Hyperledger (Sawtooth Lake), Multichain, HydraChain, Open Chain, IBM Bluemix Blockchain, Chain, IOTA in the article of Shyam Purakayastha5. However, one must take due care before selection of the public DLT. Rohas Nagpal6 has written about 17 more platforms which are “purely peer-to-peer version of electronic cash.”
At this stage readers are must be keen to know what all applications are possible using Blockchain. The present author has tried to compile the following illustrative list, which is in no way being claimed to be comprehensive, because every week and month a new use is being ideated, developed, tested, and / or put to pilot or full commercial use in some parts of the world.
|Finance, Industry, Trade and Commerce||Government Service Functions and Others|
|1. Banking, Insurance, Credit history, FinTech||I. Government functions and services|
|2. Cross border P2P and B2B remittances||1. Citizens identity management and Passport|
|3. Investments in capital assets, Derivatives||2. Public voting|
|4. P2P Lending, Crowd funding, Micro finance||3. Land registration, title deed and mortgage|
|5. eCommerce, Software Apps sale||4. Wills and inheritances|
|6. Health care||5. Underground water use management|
|7. End to end export-import business||6. Correction houses, orphanages|
|8. Multimodal supply chain||7. Gun safety management|
|9. Real estate listing and rental||8. Law enforcement and crime management|
|10. Sea and dry port management||II. Others|
|11. Security trading, stock exchange management||1. Music streaming|
|12. Contracts – Digital Rights, Wagers, Escrows||2. IPR of singers and musicians|
|13. Public transport and ride sharing||3. Donations and charity, old age home|
|14. Public car parking at airports||4. Protection of right to speak and write|
|15. Pollution control devices and carbon credit||5. Testimonials and credential documentation|
|16. Travel and leisure management||6. Cloud storage and cybersecurity|
|17. Warranty and maintenance services by OEMs||7. Education|
|18. IOT and Blockchain of Things||8. Human resource|
The following information are relevant and useful to know in the context of Blockchain technology applications and implementations:
- Power of Blockchain is being further enhanced with simultaneous applications of Artificial Intelligence, Machine Learning, Deep Learning, Predictive Modelling and Internet of things. In near future Swarm Computing and Human Brain-Computer Interface are expected to enhance the power of Blockchain.
- Existing and established entities can migrate from legacy systems to DLT based operations and accept payments through CC. The myth that Blockchain is for startups only has been invalidated by a European company called ParkinGo.
- There are several instances of service providers using Blockchain resorting to issue of their own CC like Helthureum for healthcare management. Some startups are also using and / or planning for Initial Coin Offering (ICO) of CCs as medium of raising funds for their projects, e. g., GladAge.
- As is evident form the above list DLT can encompass different streams of activities in one application. Therefore, very existence of embedded ‘Smart Contracts’ will transcend multitude of legislations within and across sovereign boundaries when participants are from different countries, e. g. export-import transactions. This will cause legal disruptions.
- As per the findings of a recent survey of Gartner, worldwide 20.4 Bln. connected things will be in use by 2020, as against 8.4 Bln. in 2017, i. e., increase by 142%. But the centralised model that currently supports billions of smart devices connected to the IoT devices fails to address several critical risk issues. Technologists are trying to use IoT devices like tracking / tamper proofing seals, powered by Blockchain, to eliminate cyber-physical gap and create a transparent and responsible system for logistics management. This concept is being christened as ‘Blockchain of Things’.
- Efforts are also on for ensuring omnichannel delivery with interoperability between more than one DLT platforms. These will add versatility, e. g., payments using a digital currency, offered by a separate FinTech operator, while business operations are done in a different DLT. This will enhance user acceptances.
- International Decentralized Association of Cryptocurrency and Blockchain (IDACB), is working on basic principles of market legal regulation and synchronize law initiatives for various countries in Blockchain and CCs. Efforts are on to propose law initiatives for regulators based on best countries’ practices. IDACB is said to already have memberships of about seventy-five countries.
- Some digital technologists are working for ushering in the requirements Industry 5.0 by cerebral designs of their Blockchain in such a flexible manner that each customer will have the option personalise his / her own needs and meet his / her unique requirements by using the platform the way they want.
The following is an illustrative list of major recent developments. These will provide directional guiding light to digital scientists for their journey through roadless paths to the dream destinations of Industry 4.0.
- “U.S. regulators are still looking into cryptocurrencies and initial coin offerings, but don’t aim to suppress the industry, according to comments made during a panel at CoinDesk’s Consensus 2018 conference in New York.”7
- “On May 16th, (2018) The European Parliament Committee on Research, Industry and Energy, passed a blockchain resolution, and included a section on initial coin offerings (ICOs). … Greek S&D member Eva Kaili said that it was an important moment because this was the first time a big institution such as a Parliament was discussing the regulatory framework requirements for distributed ledger technologies and blockchain.”8
- “J.P. Morgan Chase & Co. is experimenting with the way blockchain could help cut costs and facilitate smoother transactions within capital markets. … The bank demonstrated a prototype of its blockchain-based platform for capital markets, called Dromaius, on May 16th at the Consensus 2018 conference… said Christine Moy, executive director and head of J.P. Morgan’s Blockchain Center of Excellence.”9
- Emirates Real-estate Solutions, the technology arm of Dubai Land Development Authority, will develop five real estate related solutions using Blockchain, viz, Title deed management, Smart sales, Real estate listing portal, Rental platform and Mortgage platform.10 The readers may be aware that the UAE Government has already taken multitude of ambitious initiatives for making Dubai as the happiest and smartest city of the world by 2020. Blockchain will play a pivotal role for achieving this target.
The present author would recommend for technologists, users, sovereign governments, regulators and all other stake holders associated with Blockchain to reflect upon the following comments and recommendations while dealing with DLT for solution building. He is of the view that consideration of these will further augment the power and resourcefulness of Blockchain.
- Power of Mind: Time immemorial Indian mythology, particularly Bhagvad Gita, has taught us that “We are born into the world of nature, Our second birth is into the world of spirit. But he who with strong body serving mind, Gives up his power to worthy work.” It is power of mind and spirit that will determine sustainable success in Industry 4.0 era. This comment can be corroborated by the famous quote of Albert Einstein who said that, “The true sign of intelligence is not knowledge, but imagination.”
- Application of ‘7WH Principle’: In present market-driven globalised economy risks and ever-changing dimensions of volatilities, uncertainties, complexities and ambiguities (VUCA) in the business ecosystem are day by day becoming more unpredictable. To withstand and combat these five foundations are required for a business ready solution. Those are Trust, Shared value proposition, Value experience, Ease of application, and Sustainability. IT professionals will be able to test whether any DLT based solution is really built on those five foundations and an antithesis of those risks by testing for the following ‘7WH Principle’ based questions ideated by the present author:
- What are the latent needs and demands of business, society and humanity at large?
- Who are the service providers and target customers?
- When the solution is to be delivered, updated and upscaled?
- Where is the universe of customer located and for what value?
- Whose regulations are to be complied with and for what risk coverages?
- Whom should the user refer to in case of trouble?
- Whether any better solution is being offered by competitors for edge in competitive advantage?
- How to minimise risks of and value destructions by legacy systems, assess and track users’ delight to ensure sustainability?At every step of system development life cycle (SDLC) the system developers must apply the above questions to ensure sustainable effectiveness and desired ROI of their solution.
- Humane Dimensions: Technology does not have morality, passion, emotion, ethics and value generation skills. Technologists have. Success of Blockchain will depend on those humane qualities of solution builders, leaving least scope for the user to deploy against humanity with an ulterior greedy motive. Blockchain will attain ‘Darling of the Mass’ status like ‘Internet’ if it is adopted and applied with the mindset of universal altruism. It should be grounded on the foundation of sustainable shared values. Blockchain technologists cannot become just another ‘Technology-tribe’. They should be harbingers of shared developments for inclusive happiness of mass. Blockchain should have its own ism irrespective of globalisation and protectionism.
- Regulatory Need: www has transcended geographical boundaries, Blockchain will have to transcend sovereign / political boundaries for achieving its dream to be the ‘Powerhouse of Industry 4.0’ with ground-breaking successes. Humanity is one and the world is its home. Hence there is definite need of a global regulatory body for directional policy guidelines, defining international code of conduct, tracking and monitoring of applications, etc., which must be followed by all nations, besides own internal regulations. Institutions like UN or WTF can take this role. Objective will be to ensure that this powerful technology can also achieve, besides success for industry, trade and commerce; shared developments for inclusive happiness of all till the lowest strata of society across the world.
Blockchain and CMAs
CMAs will find enormous opportunities for participating in the process of developing market driven entity-specific business strategies, dovetailing the same with digital transformation strategies, providing consultations for risk-enabled performance management, etc. They can immensely contribute for articulating digitally transformed business requirements, participate in solution development using Blockchain, AI, Machine Learning, Forensic Data Analytics, etc. testing them before use. They can define revised policies and lay down SOPs for clients. They can also add values by conducting RAGE (Required, Available, Gap and Essential) Analysis before the said 7WH Principle is deployed and tested jointly with the digital scientists. All these will contribute for ensuring sustainable value creation for business entities and the society as a whole for inclusive happiness.
Written by Dr. Paritosh Basu for the Block Review.