Standardization

Every successful technology goes through three distinct phases: innovation, standardization, and commoditization. Innovation is the trigger that sparks the initial interest in the technology. Standardization is the process of market forces that forces an industry into accepting a common vocabulary—whether that’s a technical protocol, specification, or some other layer. Commoditization is the process by which technology becomes cheaper and easier to adopt.

For blockchain, the innovation trigger was arguably Bitcoin’s creation in 2008, although you can point to other technologies such as peer-to-peer networks, hashchains, or even Luca Pacioli’s documentation of double-entry bookkeeping as stepping stones that have led us to blockchain. Since 2008, however, after several years of blockchain education and experimentation, effort is now being invested on standardization. This phase is important because standards will allow for assets to flow more easily across diverse business networks, and for networks to grow regardless of ledgering technology. As we discussed in Chapter 1, the future lies in the network of networks.

Standardization can occur at many different layers; the best standards are descriptive rather than prescriptive, as they allow for further innovation and for new business models to form. Bodies such as ISO, IEEE, and W3C are all looking at different aspects of blockchain standards. Additionally, the Enterprise Ethereum Alliance has documented a specification for blockchain clients that is starting to gain traction, and the Inter-Ledgering Protocol is an effort at the protocol layer for blockchains to communicate, although this is currently very payments specific.

Over time, standards will emerge and aspects of blockchain technology will become commoditized, which is a good thing as it provides the motivation for further innovation. Vendors will look for additional value on top of the blockchain, whether that’s through platforms, analytics, Internet of Things, or some other innovation trigger, and the cycle can begin anew.

Stability

While new features are being added to blockchain technologies such as Hyperledger Fabric, we can expect to see a stabilization period as business networks move their pilots into production. A good example of this is Hyperledger Fabric’s v1.4 Long Term Service release, which aims to be a known baseline that businesses can comfortably move into production and upon which fixes can be applied.

Simplification

There is a strong demand for simplification, which is again a sign of the growing maturity of the technology as blockchain moves from being a research community effort into the mainstream. The increase in programming language coverage, simplified smart contracts, and client APIs in Hyperledger Fabric will make it even easier to develop blockchain solutions.

In the future, we can expect to see a further reduction in the barriers to entry for blockchain, including catering for nontechnical constituencies such as business leaders and lawyers, who might not need technical interfaces to the ledger but do have vested interests in the nature of active smart contracts.

The Next Generation of Blockchain Features

A huge amount of innovation continues to be applied to blockchain, typically through the application of related research. Together these help to address concerns and challenges of blockchain adoption within business networks. For example:

Cryptoanchors

These provide a way of encoding digital fingerprints in real-world objects. For blockchain this will provide an interesting way of identifying and verifying assets on a blockchain that cannot be easily encoded (aspirin or oil, for example), which will help to solve the problem of counterfeit goods.

Token management services

These allow permissioned blockchains to create fungible tokens that map to assets, which allows multiples of them to be easily traded. While the UTXO model that describes an efficient mechanism for the issuance, storage, and transfer of tokens has long been present in cryptocurrency implementations such as Bitcoin, we’re now seeing it appear in policy-based blockchains such as Hyperledger Fabric. Tokens will help bring together previously separate conceptual models of assets and thereby allow these blockchains to work with a much wider set of asset types.

Zero-knowledge proofs

These allow you to prove to a third-party that you know a fact without revealing the fact itself. This will allow blockchains to be used as a store of proof rather than a store of data, allowing businesses to avoid the risk of sharing confidential information with unauthorized people. This is particularly important in asset-trading scenarios, in which the details of the participants of a trade might remain confidential, yet still providing transparency to regulatory bodies.

Artificial intelligence

This is a broad area that covers machine learning, analytics, and other technologies. Most commonly in blockchain, AI can be used to provide insight into the data stored in the shared system of record, giving insights into the lifecycle of assets and providing the data needed for further process optimization.

Blockchains for Business

The early adopters of blockchain for business were predominantly in the finance industry. There are several possible reasons for this, including a strong fintech community, the association of blockchain (at least initially) with cryptocurrencies, and the fact that trust lies at the heart of the banking business (i.e., we trust banks to take care of our money rather than keeping it under our mattresses). There are several well-advanced finance blockchains, for scenarios including international payments, trade finance, and letters of credit.

One of the most popular areas for today’s business blockchains is for the tracking of assets in supply chains. This is because of the lack of trust and transparency that many supply chains exhibit, the problem of counterfeiting that results from this, and the ability for blockchains to irrefutably track asset provenance. Some examples of supply chain blockchains include food, freight, diamonds, wine, and drugs, but the same template could be applied to any high-value asset. We’re now seeing the emergence of templates to make the development of supply chain blockchains easier (e.g., Hyperledger Grid™).

Looking ahead, what businesses will start to find is that the industries in which blockchains are deployed are no longer relevant. The interrelated nature of business networks means that as blockchains expand their membership and complexity, defining a blockchain as belonging to a single industry or geography no longer makes sense. Supply chains are typically global and can span manufacturing, distribution, retail, finance, and other sectors, too. At what point does a drug blockchain cease to be a drug blockchain when a dispensing transaction triggers a stock-replenishment business process that then triggers a financing operation, manufacturing, and parts replacement?

In a network of networks, the cascade effect will be significant and businesses will become truly interconnected. These efficiency gains will reduce cost, allow new markets to be reached, and bring about a new era of transactional applications. Different governments have different priorities when it comes to protectionism versus free market access, but over time we know that competitive markets will remove barriers to trade and gravitate toward the lowest-cost, most efficient solutions. Blockchain can help make that happen.

Blockchains for the Good of Society

There is also a compelling set of blockchain applications that will (or already) exist predominantly for the good of society, yet also provide complementary benefit to businesses. Here are some of the more interesting ones:

• A 2009 study by the United Nations Office on Drugs and Crime showed that Afghan citizens paid $2.5 billion in bribes (about 23% of Afghanistan’s GDP). Smart contracts enforce the terms for any given transaction and the blockchain itself engenders transparency. These characteristics, when applied to charitable donations and aid, will help reduce bribery and the effects of corruption, particularly in developing countries.

• The world is seeing an increase in extreme weather, and the ability to insure homes in affected areas is often impossible because a single insurer cannot adequately cover the risk. In California, for example, just 12% of homeowners are covered by earthquake insurance. Pooling the risk using catastrophe bonds and blockchain to automate the claims process across the insurer network will help families rebuild their lives more quickly after extreme weather events.

• Dynamic blockchain-based marketplaces will lead to more efficient use of natural resources in an increasingly complex energy network that includes diverse producers and consumers, such as electric cars and solar panels. For example, TenneT and Vandebron have a pilot project that offers car owners access to the electricity market. These marketplaces will also help clean up the plastic in our oceans by creating incentives for collection and recycling of the plastic waste (for example, PlasticBank).

• Decentralized identity systems (such as the Sovrin network and platforms built using Hyperledger Indy) put users in control of their own personal data and also provides a mechanism for verifiable claims (facts) against those users. This will allow organizations such as educational institutions and employers to attest qualifications and work history, which will help to prevent fraud. The same idea could also help content producers attribute media to their sources, thus helping to combat plagiarism and “fake news.”