Published

28

Jan

2020

Position Paper

Blockchain brokers trust in a fragmented world

  • The World Economic Forum predicts 10 percent of global GDP will be stored on blockchain by 20271
  • Customers are demanding greater trust and traceability from suppliers and won’t expect to pay any more for it; blockchain is part of the new technical foundation that delivers trust
  • Wardley Mapping shows blockchain is following the same maturity evolution as other mainstream technologies
  • Unlocking blockchain’s value depends on establishing higher-order aspects of policy and governance, which currently lag behind its technological capabilities
  • Blockchain acts as a trust broker within supply chains; trusting the trust authority of another network enables bigger ecosystems – and will be facilitated by regulators and provisioned by a nascent trust brokerage industry
  • Any pilot conducted as a solitary technology exercise needs to include the thinking of regulators, policy makers and legal teams, as exemplified by the Isle of Man’s Blockchain Office
  • Blockchain will become the de facto technology for enabling trust along a supply chain and between sectors, as demonstrated by Maersk in marine insurance and logistics

Enterprises around the globe are using blockchain to reduce cost, raise trust and broaden participation in supply chains that were previously opaque and fragmented. The immutability of distributed ledger technology brings a highly desirable USP of trust in an age of mistrust. Couple it with real-time data, and blockchain’s trusted properties have the power to annex the physical world, creating new value and markets.

Despite successful outcomes in governments, corporations and small artisan businesses, all using blockchain in anger, the technology has yet to reach scale and pervasiveness. The reluctance of procurement chiefs and business leaders to invest in a technology they don’t understand has put the technology on pause; misuse of bitcoin by criminals has confused the business conversation and dented trust in blockchain – perversely, since its proposition is that it creates trust.

There’s another reason why pilots of the trust-based technology are not making it into production: regulators, many of whom are engaged and proactive, are still getting up to speed on how blockchain will change the way industry stakeholders transact and how regulations will need to adapt to maximize the opportunities. Any pilot conducted as a solitary technology exercise needs to include the thinking of regulators, policy makers and legal teams.

Significantly, as this paper went to press, UK policy advisers – the LawTech Delivery Panel – published a statement recognizing cryptoassets as tradable property and smart contracts as enforceable agreements under English law. The move addresses legal uncertainty and could revolutionize agreements from mortgages and medical research to property ownership, as smart contracts automatically execute transactions and remove the need for a middleman.

LEF believes the blockchain slowdown, in the meantime, is temporary: we see blockchain following a typical path of maturation to becoming a utility/commodity, like the cloud and many other technologies. Unlocking its value depends on establishing higher-order aspects of policy and governance, which currently lag behind its technological capabilities. This part of the maturation cycle calls for collaboration between regulators, policy makers, lawyers, and governance and compliance chiefs to set the rules for participation, interoperability and data sharing.

In this Position Paper we examine blockchains that are being used by governments, regulators, corporations and artisan innovation pioneers, unpick their value, and assess the regulatory and governance challenge. Critically, through our application and analysis of Wardley maps, we can predict when blockchain will become the de facto technology for enabling trust between different businesses and sectors – and the preparations you should make.

LEF believes the blockchain slowdown, in the meantime, is temporary: we see blockchain following a typical path of maturation to becoming a utility/commodity, like the cloud and many other technologies. Unlocking its value depends on establishing higher-order aspects of policy and governance, which currently lag behind its technological capabilities. This part of the maturation cycle calls for collaboration between regulators, policy makers, lawyers and governance and compliance chiefs to set the rules for participation, interoperability and data sharing. 

Figure 1a – Maturation & impact of compute power

Figure 1a – Maturation & impact of compute power

  • A Wardley map shows how the evolution of new technologies impacts a value chain that uses those technologies to deliver customer-facing applications
  • The evolution of computing shown here progresses from new, through the productization of standard servers in on-premises data centres, to ubiquitous off-site compute power that is a commodity/utility. This evolution is radically changing the upstream aspects of the value chain, in particular the architectural practices needed to make best use of this utility. Previous best practice is now legacy and we need new architectural practices to maximize value from the commodity
  • These new practices (such as DevOps) are developing but still require more work to become the new best practices

Figure 1b – Maturation & impact of blockchain

Figure 1b – Maturation & impact of blockchain

  • With blockchain, we see a similar pattern: blockchain is an evolution of ‘systems of record’ capabilities, which together with immutability, and cryptography and its distributed capabilities, is improving certainty and efficiency around data and transaction
  • The shape of this map is almost identical to the one in Figure 1a; only the relative maturity of the underlying technologies is different
  • Instead of architectural standards being the major issue, for blockchain the issue is largely one of policy and regulation maturity; this ensures that standards for access and contribution, data definitions and interoperability enabled by the new technical capability are clearly defined
  • Since many of the blockchain use cases are across multiple sectors, these standards will require some additional domain standards to be defined and agreed before the true value of this evolving technology can be fully realized

Blockchain as trust broker

As a maturing technology, blockchain’s proposition of increased trust will exponentially increase along the value chain as it transitions into a commodity service (see Figure 1b). So blockchain will play a future role in brand building and policing by increasing transparency and traceability into long, complex supply and value chains. The immutable way in which blockchains are built increases participation, efficiency and the speed of innovation – and with universal data standards in place, it will have the ability to connect discrete ecosystems.

  • Trust. Trust is a prerequisite for any transaction, but it’s getting harder to build along protracted supply chains. Hard earned and easily lost, trust is the essential foundation for activities as diverse as brand building and government policy making. In insurance and manufacturing supply chains, and capital markets, immutable distributed ledgers are ending opacity and aiding fraud prevention by accurately tracking asset transfer and ownership. In food chains and high-value goods, the data integration capabilities of blockchain can track asset status and provenance.
  • Efficiency. Blockchain is proving transformative in supply chains where there are numerous activities and handovers of ownership, each of which generates data (for example in logistics and shipping). The advantages of automating multiple handoffs that comply with clear regulations and policy across the supply chain are immense, speeding transactions, reducing waste and providing

1. http://www3.weforum.org/docs/WEF_Building-Blockchains.pdf

 


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