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What is blockchain? The complete guide

The much-hyped distributed ledger technology (DLT) has the potential to eliminate huge amounts of record-keeping, save money, streamline supply chains and disrupt IT in ways not seen since the internet arrived.

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Last year, Ethereum began exploring ways to increase performance after the blockchain ledger and cryptocurrency reached more than one million transactions per day.

Ethereum settled on two proposed fixes. One was a "layer 2" mechanism – processing transactions off the chain in a standard database and only recording permanent entries on the ledger; the other solution was sharding, allowing many more transactions to be processed in parallel at the same time.

Blockchain standards organizations and startups are also exploring newer consensus mechanisms to create more efficient and less compute intensive DLT.

Which industries use blockchain?

Even as those advances are being explored, industries are ramping up pilots and live deployments of blockchain. Shipping. Fintech. Healthcare, Energy and Real Estate. Blockchains are being put to a wide variety of uses in a myriad of vertical industries. (It's even been touted as a way to exchange carbon credits.)

In shipping, for example, a bill of lading for cargo shipments has traditionally been paper based, which requires multiple sign-offs by inspectors and receivers before goods can be delivered. Even when the system is electronic, it still requires multiple parties to sign off on cargo shipments, creating a lengthy administrative process.

Maersk is piloting a blockchain-based cargo tracking system with 94 partner participants, including more than 20 port and terminal operators; smart contract technology can track the temperature of containers using IoT technology and report on when they leave ports and reach destinations.

IBM, blockchain, Maersk Maersk

Ninety percent of goods in global trade are carried by the ocean shipping industry each year. A new blockchain solution from IBM and Maersk will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process.

 IBM, Maersk

Each participant in the shipping supply chain can view the progress of goods through the blockchain ledger, understanding where a container is in transit. They can also see the status of customs documents, or view bills of lading and other data in real time. And, because it's an immutable record, no one party can modify, delete or even append any one of the blocks without the consensus from others on the network.

"Blockchain and distributed ledgers may eventually be the method for integrating the entire commercial world's record keeping," said Saurabh Gupta, vice president of strategy at IT services company Genpact.

Blockchain eliminates huge amounts of recordkeeping, which can get confusing when there are multiple parties involved in a transaction.

Genpact, for example, announced a service for finance and accounting that leverages blockchain-based smart contracts to capture all terms and conditions between a customer and an organization for an order.

Blockchain in FinTech

But it's financial services technology where blockchain is currently shining brightly.

At a high level, blockchain removes third parties from the equation; in other words, a financial transaction on a blockchain needs no bank or government backer, and that means no fees.

Blockchain lends itself to a number of common use cases in the financial services market, including regulatory compliance, cross-border payments & settlements, custody and asset tracking, and trade finance and post-trade/transaction settlements, according to IDC.

Because blockchain entries can be seen in real time, the technology also has the potential to reduce time for clearance and settlement, which can take up to five days.

One Accenture report claimed blockchain technology could reduce infrastructure costs for eight of the world's 10 largest investment banks by an average of 30%, "translating to $8 billion to $12 billion in annual cost savings for those banks."

In the case of cross-border payments, processing is often complex and includes multiple layers of communication among payment participants to verify transactions –  an operation known as payment and settlement.

Payments, clearance and settlement in the financial services industry – including stock markets – is rife with inefficiencies because each organization in the process maintains its own data and must communicate with the others through electronic messaging about where it is in the process. As a result, settlements typically take two days. Those delays in settlements force banks to set aside money that could otherwise be invested.

Because it can instantly share data with blockchain users, the technology reduces or eliminates the need for reconciliation, confirmation and trade break analysis. That helps yield a more efficient and effective clearance and settlement process, according to Accenture.

J.P. Morgan has created what is arguably one of the largest blockchain payments networks to date: the Interbank Information Network (IIN). The financial services company announced in late 2017 that the Royal Bank of Canada and Australia and New Zealand Banking Group Ltd. had joined INN, "representing significant cross-border payment volumes."

J.P. Morgan created the network to significantly reduce the number of participants needed to respond to compliance and other data-related inquiries that can delay payments.

"IIN will enhance the client experience, decreasing the amount of time – from weeks to hours – and costs associated with resolving payment delays," said Emma Loftus, Head of Global Payments and FX at J.P. Morgan Treasury Services. "Blockchain capabilities have allowed us to rethink how critical information can be sourced and exchanged between global banks."

Mastercard, meanwhile, in late 2017 also launched its own blockchain network to enable partner banks and merchants to make cross-border payments faster and more securely. The Mastercard blockchain service can be used to clear credit card transactions and eliminate administration tasks using smart contract rules, thus, speeding up transaction settlement.

Blockchain and mobile payments

Prior to rolling out a blockchain-based electronic exchange, peer-to-peer foreign exchange provider KlickEx was limited in scale by the company's own infrastructure; it served about 1 million users per day across eight countries, or about 80% of households in its Pacific region.

Today, the monetary exchange handles about 90% to 95% of all electronic payments for the region that are for $200 or less. When not overtaxed, the old KlickEx exchange system was able to clear payments in between 90 and 200 seconds. But a common processing issue often slowed the process: payments received would outpace payments issued, forcing the exchange to use batch processing. That caused payments to enter queues and created a delay that could take days.

A new blockchain-based payment system that KlickEx has created can process cross-border payments in seconds.

blockchain ios application IBM/KlickEx

KlickEx Group, a United Nations-funded, Pacific-region financial services company, and Stellar.org, a nonprofit organization that supports an open-source blockchain network for financial services, are backing a new cross-border, mobile payments service. This is an example of the iOS app.

The Polynesian payments system provider partnered with IBM to create an open-source payment network as a new international exchange based on a blockchain electronic ledger. The new network uses IBM's Blockchain Platform, a cloud service, to enable the electronic exchange of 12 different currencies across Pacific Islands as well as in Australia, New Zealand and the United Kingdom.

"In bringing IBM in to mature the technology, we think we're pushing something like 8 million...payments per day capacity, which is a long way up from where we started," KlickEx CEO Robert Bell said. "So the new real-time system based on blockchain means payment happens immediately, rather than in batch files."

Blockchain for healthcare

Blockchain can also act as a collaboration network, enabling varying parties to exchange and add to information, such as a patient's electronic healthcare record, in real time. The blockchain acts as a verification tool, ensuring only authorized users — such as a physician, insurance provider or patient — can make changes to the ledger.

Blockchain's interoperability could underpin data exchange, serving as an alternative to today's health information exchanges (HIEs); essentially, it would act as a mesh network for transmitting secure, near real-time patient data for healthcare providers, pharmacies, insurance payers and clinical researchers, according to IDC.

In 2017, startup MintHealth, launched a portable, personal health record for mobile  based on a blockchain exchange. MintHealth will be rolling out the platform to commercial health insurance plans to help patients with chronic conditions such as heart failure, diabetes and hypertension that account for more than 90% of healthcare costs today. In addition, patients at risk for, but not yet suffering from, chronic conditions will also benefit by having access to their medical records and control of their own health data by entering data such as vital signs or blood glucose levels.

Start-up Hu-manity.co has partnered with IBM to develop an electronic ledger that gives consumers the cryptographic key to grant to their personal data, even allowing patients or others to control the specific purpose for which it's used, while also allowing them to eventually profit from it.

The new Global Consent Ledger will initially begin with healthcare data from U.S. residents and provide a digital data trail stored on the IBM Blockchain Platform, which uses the Hyperledger Fabric specification.

android title of data ownership Hu-manity.co

Hu-manity's title of ownership for personal data, which also includes a blockchain protected hash key.

IBM Watson Health and the U.S. Food and Drug Administration are also exploring the use of blockchain for secure patient data exchange, including sensitive electronic medical records (EMRs), clinical trials and data culled from mobile devices and wearables.

In November, Amazon announced an analytics service aimed at scouring unstructured data within EMRs to offer insights that physicians can use to better treat patients. Amazon's new Comprehend Medical AWS cloud service is a natural-language processing engine that purports to be able to read physician notes, patient prescriptions, audio interview transcripts, and pathology and radiology reports – and use machine learning algorithms to spit out relevant medical information to healthcare providers.

And in early 2019, SAP launched a supply chain tracking service based on blockchain that will enable drug wholesalers to authenticate drug packaging returned from hospitals and pharmacies.

SAP’s Information Collaboration Hub for Life Sciences will initially be used to trace the return of unused drugs to wholesalers. But SAP plans to expand use of the technology to include a broader range of pharmaceutical supply chain processes.

Blockchain careers are taking flight

As more businesses explore blockchain pilots, jobs for Blockchain developers are becoming a premium. Blockchain developer is ranked first among the top five emerging careers, and job postings for workers with those skills have more than doubled this year.

In short, demand for blockchain professionals is skyrocketing. 

lkn emerging jobs LinkedIn

In December, LinkedIn revealed its top five emerging careers and – in concert with other recent data – found that blockchain developer is at the top of the list.

Job listings for those who can create blockchains have grown 33-fold in the past year, according to LinkedIn's 2018 U.S. Emerging Jobs Report. In distant second place are machine learning engineers.

Topcoder, a company that creates computer programming contests, announced its new Blockchain Community with partner ConsenSys. The community aims to teach programmers and engineers how to build blockchain applications.

blockchain careers jobs Janco Associates

How companies should approach blockchain

Regardless of who developed any new technology, businesses should always take a pragmatic approach when adopting it. That's true of blockchain.

"You can't ignore it, but you can't just blindly adopt a new technology. The key is to see if it makes sense for your business problem,” Gupta said.

A growing number of blockchain distributed ledger platforms are now being developed in parallel, with specialized applications on top of them, according to Gupta. The industry will need further standardization to encourage widespread adoption.

"Such challenges are common with new technologies," he said, "and even with this concern, blockchain is seeing a lot of interest."

According to Angus Champion de Crespigny, Ernst & Young's Blockchain Leader, blockchain distributed ledger technology is also well suited to propagate security policies and identity access management, which can traverse a myriad of markets. The fact that each blockchain record contains a unique cryptographic hash that is used to track that block, as well as others in the associated chain, means data cannot be modified. That makes it perfect for record keeping and auditing purposes, he added.

De Crespigny noted that more vendors are now producing business-specific products, "which is really what's needed."

Blockchain: Too much hype?

In a joint report released in late 2018 for the Monitoring, Evaluation, Research and Learning (MERL) Technology conference, researchers studied 43 blockchain use cases and concluded that all underdelivered on claims.

And, when they reached out to several blockchain providers about project results, the silence was deafening. "Not one was willing to share data," the researchers said in their blog post.

In their research, Christine Murphy, a social researcher at Social Solutions International and John Burg and Jean Paul Pétraud, fellows at the U.S. Agency for International Development, found a proliferation of press releases, white papers and persuasively written articles touting the many attributes of blockchain.

"However, we found no documentation or evidence of the results blockchain was purported to have achieved in these claims. We also did not find lessons learned or practical insights, as are available for other technologies in development," the researchers reported.

Avivah Litan, a Gartner vice president and distinguished analyst, said while the report's findings came as no surprise to her, it lacked balance. The researchers did not bother to ask why projects had not delivered on goals, such as improving transactional efficiency, transparency and privacy, she said.

Gartner Hype Cycle Gartner

Garner's Hype Cycle for new technolgies. Distributed ledger technology or blockchain has been overhyped for years, but as enterprises deploy more pilots and business leaders in general become more familiar with it, it is heading into the Trough of Disillusionment and is expected to emerge on the slope of elightenment, according to Gartner. 

"Back in early 2018, we'd already said... 99% of enterprise projects are dead end; 99% don't need the technology; they don't get out of the lab. They're a result of CEOs fear of missing out – the FOMO phenomenon," Litan said. "Having said all that, it's a very valuable technology. People started trying to use it before it was ready for prime time. That's true in the cryptocurrency world and in the enterprise blockchain world."

The future of blockchain

The reason some organizations feel angst about moving forward (or failing to do so) is because blockchain goes to the heart of how we organize our information and our records-keeping infrastructure, according to Lakhani. Any blockchain-centric overhaul is not going to happen overnight.

In the case of TCP/IP – the basis of the internet world that we now take for granted – it took 30 years to develop.

"When we started this in the 1970s, no one anticipated I could be in Boston and FaceTime with my mobile device with someone in Shanghai. That was science fiction," Harvard’s Lakhani said.

"My sense is this will again take time. We need both business logic and technical logic to be figured out, the applications to be developed and people to be trained to use it,” he said. “then we'll adapt our institutions to the new way of sharing information."

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