Crypto hogs the headlines, but supply chains are more likely to be blockchain’s first practical use case, MIT experts say. Here’s how to proceed.
Will blockchain disrupt your industry? Maybe, but it’s not likely to happen anytime soon. At least that’s the opinion of many MIT experts who watch the blockchain space.
“In 2019, the actual live use cases of blockchain are predominantly for speculative investing,” said MIT Sloan professor Gary Gensler, a senior advisor to the MIT Digital Currency Initiative and former chairman of the U.S. Commodity Futures Trading Commission.
Michael Casey, senior advisor to the Digital Currency Initiative, agreed. “Across the board, actual productive use of blockchain for day-to-day business operations is still extremely thin. There’s no doubt about that,” said Casey, co-author of “The Truth Machine: The Blockchain and the Future of Everything.”
Neha Narula, director of the initiative, may have summed it up best as she moderated a panel at MIT’s 2019 Business of Blockchain conference. Referring to MIT’s first blockchain conference three years earlier, Narula said, “Maybe in 2016 we underestimated the amount of learning that needed to happen at all layers.”
Blockchain is a distributed ledger technology that creates an unchangeable record of transactions, facilitating interaction between participants without the need for intermediaries such as banks.
The technology is complex and not conclusively defined — some so-called blockchain applications are simply traditional distributed ledgers, lacking blockchain’s hallmark features of anonymity and immutability, experts have pointed out. What’s more, figuring out how and when to apply blockchain is challenging, and companies are struggling with the business model.
“We are on a giant, giant learning curve right now,” said Simon Whitehouse, senior managing director for financial services, growth, and strategy at Accenture, who also spoke at the conference. Most companies don’t yet understand “how blockchain can work, how it can add value, and why they have to cooperate and compete with partners at the same time.”
Different consortia have formed in different industries to try to collaborate on blockchain, but progress has been limited. “The reason it’s taking such a long time is not necessarily a technical problem,” said Casey. “It is a cultural and structural challenge getting different non-trusting parties to work together. Blockchain is a ‘we’ technology, not a ‘me’ technology.” Its biggest benefits are for the group, not a single company.
First up: supply chains
Although the initial enthusiasm was about finance, supply chains are more likely to be the first real, practical use case for the technology, said Irving Wladawsky-Berger, a visiting lecturer at the MIT Sloan School of Management.
“Financial systems are among the most ungodly complicated systems you can imagine,” he said, making the application of a complex technology like blockchain extra difficult. Supply chain applications can be simpler, and the potential value more straightforward.
Wladawsky-Berger said he can explain a supply chain application in the time it takes to deliver an elevator pitch, albeit a longish one (30 floors, he said). “If you are going to develop something complicated, being able to describe it simply is very important,” he said. “I think that’s a major part of why supply chain is the killer app of blockchain.”
As a shared digital ledger that creates an immutable record of transactions, blockchain is ideal for tracking the provenance of goods. It enables trustworthy shared information among suppliers that may not trust each other. “One of the best ways to think about blockchain is in the context of a supply chain,” said Casey. It enables a group of independent entities, which have their own interests and information to protect, to share a common platform that holds information of common interest.
It helps to have a dominant company driving the use of blockchain, as is the case in two supply chain applications that may be close to going into production. Walmart has been running a pilot project with IBM’s Food Trust Solution, a blockchain-enabled distributed ledger of food system data, to track lettuce from its suppliers to Walmart shelves.
And Dutch shipping company A.P. Moller-Maersk A/S is using IBM technology in a blockchain pilot that will track ocean cargo containers. Five of the world’s largest carriers, controlling a majority of container cargo capacity, have signed on, according to the Wall Street Journal.
Finance and cryptocurrencies
There are plenty of potential uses in finance — using blockchain to control and service loans or underpin smart contracts, for example. But for now at least, the lion’s share of attention is going to cryptocurrencies and stablecoins, said Gensler, who with Narula co-teaches an online course on cryptocurrency.
Cryptocurrencies like Bitcoin and Ethereum are a form of private digital currency that use cryptography and blockchain to secure and verify transactions. Stable value coins like Tether, USD Coin, and proposed offerings from Facebook, JPMorgan Chase, and Deutsche Bank are pegged to currency or another asset so that they are less volatile than a cryptocurrency.
Further, several central banks are creating their own tokens. The tiny Republic of the Marshall Islands (population: 53,000) has launched the Marshallese sovereign (SOV), while the People’s Bank of China is reportedly planning to issue its own digital currency.
It’s not clear that any such alternative payments would be better than the current digital distributed ledger technology and digital payment structure that banks already use to move money, Gensler said. The United States, for example, uses the Automated Clearing House, among others, and it works well. “Shared distributed ledgers have been around for decades. Blockchain technology is not new in that regard,” Gensler said.
Although there are more potential use cases than real ones for blockchain in business, that could change fast. “We’re still in early years with this whole thing,” Gensler cautioned. “Where we’ll be in 2025 or 2030 is yet to be known.”
Building up to blockchain
As business leaders watch developments in (and hear the hype about) blockchain technology, they can stay grounded by asking practical questions about what blockchain can and cannot do for their organizations, the experts advised.
Start by asking strategic questions, said Gensler. “These big strategic questions aren’t hard to ask,” said Gensler, but they can be hard to answer, which is where their value lies. Among them:
- What’s the value proposition? What problem will this solve, and how will blockchain be better than other solutions?
- More specifically, blockchain is by design immutable — meaning once it’s been added, data in the blockchain cannot be altered. Does your application need that?
Gensler also suggests these tactical questions:
- What data will be written to the ledger?
- Who (within a company) will be allowed to write to the ledger?
- Who (within a company) will be allowed to see the ledger?
- How will the parties preserve confidentiality of data and comply with privacy laws?
The biggest challenge for blockchain applications is the extent to which companies will truly collaborate, according to Casey. In a consortium of equals, when there is no dominant player “to bash all the heads together and make them do it,” what is the motivation for companies to participate, he asked. Projects that deliver valued outcomes to all parties are more likely to succeed.
If you decide to explore blockchain, start small, then grow incrementally as you learn about the technology and convince other companies to work with you, said Wladawsky-Berger. “Don’t swing for the fences,” he said. “Just get on base.”