Five trends to shape blockchain in 2020

The year 2019 was pivotal for enterprise blockchain. The technology expanded beyond adoption by innovators and first movers to include a growing number of organizations working together to rapidly turn blockchain’s promised value into tangible business results.

As active blockchain networks bring real transformative change to a number of industries, the IBM Blockchain team conducted interviews across our vast group of technology experts, researchers, and those partnering closely with clients across industries to pull together the following five key themes we expect to materialize over the coming year:

1. Pragmatic governance models will emerge

With greater blockchain adoption on the horizon, governance will become a key factor. Yet, creating a governance model that all participants agree upon can be challenging. In fact, we have found that 41 percent of organizations believe lack of uniform governance standards across partner organizations to be the most significant challenge to progressing their blockchain proof of concept (PoC) or minimal viable ecosystem (MVE).

In 2020, we’ll start to see new governance models that enable large and diverse consortia to approach decision-making, permissioning schemes, and even payments more efficiently. These models will help to standardize information from different sources and capture new and more robust data sets. In the next one to three years, we learned that 68 percent of CTOs and CIOs even expect to see a scalable governance model for interactions across multiple blockchain networks to be an important feature of their organization’s blockchain environment.

To get others to agree with the group — especially those key contributors that single-handedly make the network more valuable — there needs to be a willingness to cooperate and collaborate. Sometimes this is achieved by incenting participation. This year, members of an existing network may encourage strategic industry players to join using monetary incentives. For example, a global supply chain consortium might subsidize members of a government-regulated customs authority agency to join a network, based on the fact that their participation, as well as their data, will allow the network to be exponentially more impactful.

2. Interconnectivity comes one step closer to reality

We have found that success in blockchain relies on collaboration from multiple parties. But, with the potential for tens or hundreds or even thousands of participants on a network, it’s unreasonable to expect that each party within a network will use the same vendor or incorporate a new computing environment for just one application. Even so, there’s an exceptional need for businesses to seamlessly share data.

Though reaching interconnectivity at the maximized level might be years away — and the definition of interoperability can take many forms  — we find that 83 percent of organizations today believe assurance of governance and standards that allow interconnectivity and interoperability among permissioned and permissionless blockchain networks to be an important factor to join an industry-wide blockchain network, with more than one-fifth believing it to be essential. Although there’s still work to be done on this front, this year as more emerging networks attain critical mass, we’ll find that more members of a single network will expect (if not demand) guidance on integration between different protocols.

3. Adjacent technologies will combine with blockchain to create a next level advantage

Now that blockchain solutions are capturing millions of data points and making their presence felt in the world, they’re opening the door to new capabilities. Adjacent technologies like IoT, 5G, AI and edge computing — to name a few — will combine with blockchain to drive enhanced value for network participants. For example, blockchain solutions that pair with the Internet of Things and AI, compared to other emerging technologies, are expected to be the top accelerators of blockchain-enabled marketplaces in the future.

Combining adjacent technologies with blockchain will help us to do things that haven’t been done before. More trustworthy data from the blockchain will better inform and strengthen underlying algorithms. Blockchain will help keep that data secure and audit each and every step in the decision-making process, enabling sharper insights driven by data that network participants trust.

4. Validation tools will begin to combat fraudulent data sources

With 88 percent of institutions, according to our research, believing that the assurance of standards to communicate data to and from blockchain networks is an important factor to join an industry-wide blockchain network, there’s no question that trust and transparency is essential. But, in a world where data is being collected and transferred faster than ever, it’s understood that there will be inconsistencies in our data, either from human error or malicious players.

With a need for heightened data protection mechanisms, this year, blockchain solutions will use validation tools along with crypto-anchors, IoT beacons and oracles, mechanisms that link digital assets to the physical world by injecting outside data into networks. This will improve trust and remove the dependency on human data entry, which is often prone to error and fraud.

5. Central banks will expand into wholesale and retail Central Bank Digital Currencies

Tokens, digital currencies and central bank-backed digital currencies (CBDCs) have been a growing topic of interest for capital markets. Tokenizing assets and securities, converting them to digital tokens, and then trading, exchanging and settling custody of such digital assets is transforming the efficiency,  security and productivity of capital markets. In fact, 58 percent of organizations we surveyed agree that they can derive new sources of revenue by tokenizing assets exchanged on a blockchain-enabled marketplace. In addition, new organizations and regulations have even been put in place to facilitate the creation, handling, trading and settlement of such tokens and digital currencies.

What changes can we expect to see in this field for 2020? With countries in Asia, the Middle East and the Caribbean beginning to experiment with CBDCs in real time, there is no doubt that they will continue to gain momentum in the new year and redefine payments in several ways. For one, CBDCs will see continued expansion in wholesale CDBCs, with some initial forays in retail CBDCs. Moreover, we find there will be increased interest in tokenization and digitization of other types of assets and securities such as central bond debentures for treasury bonds.

Closing thoughts

While spending time anticipating the future of this innovative technology is extremely exciting, we recognize new dynamics are continually entering the market that may challenge these trends as we see them today. There are also plenty of promising trends, like the rise of digital identity for blockchain, that we haven’t touched on here. However, one thing is certain, blockchain will continue to disrupt, enhance and improve the world we live in.

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Environments Where Blockchain Can Thrive

A Blockchain solution can flourish in business scenarios that have a high number of participants that all want to track a particular product or item. And the more complex the tracking process, the more a Blockchain application can thrive.

For example, if a product traverses through a series of steps that starts with its creation and ends with its delivery into the hands of a consumer, then incorporating a Blockchain solution into this process can potentially offer many benefits. For example, it can enhance the overall information security, as well as provide both substantial time and cost savings for all participants in this product’s life cycle.

Blockchain Benefits

To illustrate this further, when a purchase order is received by a manufacturer for a particular item, the product’s life cycle begins. Starting with the purchase order, the product’s manufacturer builds the product then hands it over to a shipper. This shipper then sends the item to a warehouser who then ships it to a wholesaler. This wholesaler then utilizes another shipper to have it sent to a retailer. The retailer then stocks the item until a consumer purchases it. Having a way for all participants in these steps to view where the product originated from, i.e. its provenance, and trace all of its handling can add many benefits, including:

◉ Transparency within supply chains
◉ Immutable information that can be available to all participants
◉ More efficiency in maintaining records
◉ Organized data for auditors and regulators
◉ Reduced or eliminated administrative record keeping errors
◉ Reduced or eliminated processing paperwork

Blockchain for an International Air Services Provider

Recently, an international air services provider, dnata, successfully tested the use of Blockchain technology in its cargo operations. This achievement is a real life example of the aforementioned scenario.

With the help of IBM and other partners, dnata developed a logistics platform with a Blockchain infrastructure. This platform was put into effect to view supply chain transactions, starting with the purchase order of an item and ending at its delivery to a warehouse. This business use-case exemplifies where a Blockchain can thrive: an environment that has a large number of participants wanting to track products through the supply chain.

Blockchain Solution for Asset Management

Another environment where Blockchain can thrive is when a company transfers assets within a business network. When a company internally transfers a physical asset such as a laptop, or in the case of trucking company, a semi trailer, from one location within its business network to another, there can be many people involved and much related paperwork to keep track of its journey. In this case, a Blockchain can establish a clear trail for the asset that has been transferred within this business network. Acting as a shared ledger, the Blockchain can allow internal company parties to view where the company’s assets have been moved to, who it was handled by, its current state, its past state, and how many times it has been transferred and even how many times it has been used – all from the same source, i.e. the shared ledger. And it can be viewed at anytime and by anyone that has permission to do so.

Also within the asset management process, there can be many issues including having transfer information split among many different record-keeping systems, conflicting information on transactional updates, and long wait times to resolve discrepancies. These can add to costs and subtract from efficiency. A properly executed Blockchain can be the sole source of transfer information, and reduce the number of asset discrepancies as well as the time it takes to resolve them.

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Blockchain and other emerging technologies for financial services

Blockchain and cryptoassets have, and rightly so, received a large amount of coverage and analysis during the last few years. In the background, and potentially representing technology tools and applications that might be more applicable for most organizations at this stage, artificial intelligence has continued to permeate an array of industry verticals.

With the continuous debate around leveraging artificial intelligence to help transform autonomous vehicles from concept to reality, AI represents an equally hot topic. Even with this continued development and integration, however, there remains some ambiguity and confusion as to how this technology will impact the broader accounting and financial services sectors.

Some of this confusion comes from the conflation of AI with other automation technologies, some arises from the deluge of other technology tools — like blockchain — driving innovation in the market, and a portion is derived from the fact that AI is not any one single thing, but rather an umbrella term.

For any emerging technology, including blockchain, to operate as effectively as advertised, practitioners must not understand that specific tool, but how it connects with other cutting-edge tools such as AI.

Read these excerpts from my new book Blockchain, Artificial Intelligence and Financial Services – Implications and Applications for Finance and Accounting Professionals, where I begin to tackle some of the issues so important to accounting and finance professionals:

“The dual headed disruption tidal wave of blockchain enabled activities and artificial intelligence will invariably lead to anxiety, stress, and potentially misunderstanding of just what these technologies represent for financial services. Blockchain, hopefully, at this point has been demystified to a certain extent, but the idea of artificial intelligence may appear and seem like a more amorphous concept that is both difficult to understand but potentially disruptive in nature. While artificial intelligence has been featured in numerous media outlets, movies, and T.V. shows, the image that is most often presented to audiences and market actors is one that, almost invariably, has negative connotations and implications for the developers and users. Fortunately, while there have been numerous advances in the development and implementation of artificial intelligence, the limits of current iterations are still substantial. In other words there is no need to fear the Terminator coming for financial practitioner roles. Prior to diving into what the applications and implications of AI may very well be, however, it seems appropriate to first put forward a definition that makes sense in the context of this discussion. Not meant to be overly technical, but rather a working definition to assist financial professionals seeking to understand and explain the implications of AI, a working definition as follows is a workable option:

Artificial intelligence is either a computer program or suite of programs that can either augment or eventually replace the need for human engagement and oversight in entire processes or at least portions of processes.

Artificial intelligence may have initially received more attention and media coverage but has subsequently received less coverage and analysis recently due to the somewhat amorphous nature of the idea itself (Lee, 2018). Blockchain and cryptocurrency may also be difficult to understand and appear to be a relatively new concept in and of itself, but even in spite of this initial confusion and analysis there are similarities between these technology tools and preexisting options. A decentralized ledger system, otherwise labeled as a decentralized ledger technology (DLT) platform is, of course, different from current centralized options, but underlying components can be related to tools like Excel and Access. Additionally, cryptocurrencies are simply a representation of how several technology tools and aspects have been combined, namely the tools of encryption, peer-to-peer processing ability, and various components of consensus data verification are not, by themselves, innovative or unique.

Contrasting versus these tools or platforms, the idea and concept of artificial intelligence can appear to be murky and lacking a relation to current technology or processes. Also, especially for financial services professionals, the challenges and threats of automation, digitization, and increased efficiency do have the potential to displace and disrupt core functions of what financial professionals actually perform. It is true that automation and digitization are not new issues and trends in the accounting and financial fields, but these do seem to be accelerating as well as mirroring events that have already occurred in other industry sectors (Mehendale, 2018). Examples abound in the marketplace, including a recently highlighted example of how J.P. Morgan is leveraging artificial intelligence tools to improve the speed and efficiency with which contracts and other paperwork are reviewed and analyzed. This example, however, is only one example of how artificial intelligence is being used in the marketplace, not even drilling down into the work underway at IBM.”

“Artificial intelligence is often tossed around and discussed as if it represents on type of platform, technology, or platform, but this represents an incomplete view of just what AI means and can imply for professionals and organizations. Without diving too much into the technical weeds of the different classes and types of AI, the following categories are included but not limited to:

1) Computational AI
2) Linguistic AI
3) Spatial AI
4) Reactive computing
5) Limited Memory
6) Theory of mind
7) Self-awareness”

It is impossible to predict just how the simultaneously developing technologies of artificial intelligence, blockchain, robotic process automation, and other automation tools will ultimately impact the accounting and financial services space. Predicting the future is, even under the calmest conditions, a difficult task and it would be difficult to categorize the current business landscape as calm.

Blockchain has, and assuredly will, continue to occupy a prominent place in the technology conversation for years to come, but it is not alone. For practitioners and organizations to both recognize the benefits of emerging technologies it is important to understand them both as individual tools and as complementary resources.

With implementation and adoption continuing to accelerate both inside and outside of the financial services space, proactive practitioners and firms are well positioned to thrive. No matter what aspect is analyzed, it would be safe to say that 2020 is shaping up to be an exciting year.

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