Blockchain to IR4.0

Digitalisation and innovation must be supplemented by a capable workforce

Blockchain has come a long way from its techno-libertarian origins of Bitcoin. Global spending on blockchain is projected at USD$4.1 billion (RM16.7 billion) in 2020, a 62% CAGR since 2017, and forecasted at $20 billion (RM81 billion) by 2025. PwC estimates that blockchain’s contribution to global GBP will reach USD$1.7 trillion (RM6.9 trillion) by 2030. 

Pick any industry and you will find many active initiatives. Yet, like every technology, blockchain is good for some things and not for others and should be considered as part of an overall solution with other technology and business aspects. Let us consider how blockchain can impact IR4.0. 

A Word About Hype: A Necessary Evil

Blockchain has arguably passed its peak hype, which is optimistic. Hype actually plays an important role in the maturation of novel technologies. When technologies such as blockchain or AI first emerge, their use and benefits are ambiguous. Hype and tech bubbles bring in necessary capital and market attention to fuel experimentation and development of nascent tech into viable commercial opportunities. We will not understand how blockchain or AI can benefit aerospace, automotive, oil & gas, or finance until we experiment with it. Some ideas may flop – this is consistent with an explorative rather than exploitative view of innovation at the cutting edge. This necessarily weeds out the bad from the good. When technologies pass peak hype, we really figure how it is useful. 

For IR4.0, Blockchain provides a digital trusted data backbone, with interesting opportunities when combined with other IR4.0 technologies. One way to think about it, Internet of Things (IOT) sensors provide granular data, which can be securely stored and exchanged on a blockchain, on which artificial intelligence or machine learning (AI/ML) can be applied for predictions and insights. 

It is promising to hear Malaysia Digital Economy Corporation (MDEC) Chairman Datuk Wira Dr Hj. Rais Hussin mentioning blockchain as part of Malaysia 5.0. Malaysia joins many countries such as China, the European Union and United Arab Emirates that have elevated blockchain as national imperatives for innovation leadership and economic growth. 

Exciting developments are also happening in ASEAN, Africa, and Latin America, where private and public sector parties are leapfrogging infrastructure and institutional voids with new technologies. Increasing policy support and regulatory clarity such as the upcoming EU Markets in Crypto-assets (MiCA) framework means this space is becoming less the “Wild Wild West” it used to be. 

Cryptocurrencies such as Bitcoin are just types of applications based on blockchain

What is Blockchain: Seeing Past the Noise

However, blockchain still does have a PR problem. With any technology, it is important to ignore the clatter and focus on its essential features. By doing so we can envision its wider potential. 

What it is not: Blockchain is NOT just Bitcoin or cryptocurrencies. These are just types of applications based on blockchain. Blockchain is also not “mining”, anonymous or completely open systems – these are just characteristics of certain types of blockchain applications. 

What it is: Blockchain is a technological system that helps multiple parties better coordinate, share, and transact over trusted data and business processes. At the heart is a shared ledger of data which everyone agrees on and has confidence it has not been tampered with. With trusted data, programs or smart contracts can be triggered to automate business processes.

Most businesses are interested in permissioned variants of blockchain. These differ from permissionless or public blockchains such as Bitcoin and Ethereum by enabling tighter controls and identities on who can participate, data confidentiality, and does away with resource intensive “mining”. These characteristics are important for commercial enterprises. 

Why blockchains matter: One word – TRUST. Blockchains are not purely technical solutions; they help resolve socio-political problems of coordination. Data and ecosystems are at the heart of today’s economy and most companies and public sector agencies are grappling with how to better coordinate with your partners. Such co-opetition – cooperation + competition – between organisations, who may also be your competitors, has many complexities including data confidentiality, legal and regulatory issues, and competitive dynamics. 

Blockchains provide a part of the solution and we have a better understanding today of its use. Let us explore examples.

Supply Chains: Transparency, Coordination and Provenance

A promising use case is ensuring resilient, efficient, and ethical supply chains, especially in our post-COVID world where tighter integration is needed between partners. Most companies face challenges dealing with the data and documents needed between their supply chain partners for better planning and ensuring authenticity of goods. Consumers also increasingly want to know the provenance of their products – where it came from, was it sourced ethically and sustainably, and so on. 

One example is IBM Food Trust, with participants including Walmart, Nestle and Carrefour, using blockchain to track the provenance of food products from farm to fork for effective planning and ensuring food safety. Blockchain can help address the complexity of tracking products across the multitudes of parties involved – manufacturers, repackagers, distributors, retailers, financiers and third-party logistics. 

In the pharmaceutical sector, Mediledger is applying a similar concept. The upcoming US Drug Supply Chain Security Act (DSCSA) will require granular digital tracking of drug products, identifying their origins and protecting consumers from counterfeits, contamination, or stolen products. Similar projects are being done in aerospace, automotive and manufacturing

This can be combined with IOT and machine learning. Sensors can track location, storage and transit conditions and prove that food and drugs have been kept below required temperature or humidity thresholds. This data forms part of the item’s immutable record on the blockchain and can trigger automated actions such as payments, insurance, or customs processes on arrival. With greater data visibility, machine learning can be applied for better forecasting. 

Blockchain resolves the issue of trust and socio-political problems of coordination

Data Sharing and Federated Machine Learning

Another potential is data aggregation and analysis between multiple parties in secure and privacy-compliant manners. Generally, with machine learning, the more data we have, the better predictive models we can develop. However, aggregating data across different companies has legal and competitive challenges. Blockchain can be combined with federated machine learning! 

An example is machine learning for fraud detection in the financial sector. Collectively different banks or insurance companies hold scores of data on customers and transactions. Combining this would provide rich data for developing highly accurate fraud detection models. However, this is very unlikely for competitive and regulatory reasons.  

Instead, these companies could collaborate to develop better models using federated machine learning with blockchain. Confidential data stays safely in the companies, and only machine learning models that do not contain any personal or confidential data are shared over a blockchain network. 

These same banks could also leverage blockchain to share KYC (Know-Your-Customer) information to improve customer onboarding experience and compliance, providing better experiences while reducing duplicate work. Regulators could also get direct insight if needed

This could apply in other sectors where all parties can benefit from a mutualistic approach to confidential data analysis, such as analysis of healthcare data, operational and safety in oil & gas, or autonomous vehicle data.

Identity and People

More broadly, secure, trusted, and easy to use digital identification for individuals and organisations has implications for how we live, work, and participate in society. Yet this continues to be a challenge. 

Identity is actually a multifaceted construct. An individual’s identity comprises multiple credentials from different government agencies such as national identity cards and drivers’ licenses. It also includes private sector credentials such as credit scores and educational qualifications.  

Considering this fragmented view, blockchains can be a secure backbone for connecting and verifying disparate identity credentials. The individual or organisation can get a unified view of their credentials in a simple to use digital format, such as a smartphone ID wallet, and they can easily share and control who gets to view it.  

Identity and “Things”

Identity can be extended to “things” as well. Parts and materials that go into products can have blockchain-based identities containing their origins, compositions, ownership, conditions, and maintenance records. This information can also enable recoverability or recyclability objectives in circular and sustainable business models. For example, in aerospace, an aircraft comprises millions of parts with an active secondary market. Honeywell and Boeing are using blockchain to track and sell over $1 billion of these assets.

“Things” can also be intangible such as intellectual property. Blockchain and so-called non-fungible tokens (NFT) could be used to manage distribution and consumption of digital assets such as 3D printing blueprints or media assets for licensing, IP protection and micro-payments. This could lay the foundation for novel business models such as industrial design and content creation marketplaces. 

Multifaceted application… Digital tracking, record-keeping and when combined with Machine Learning, allows for fraud detection

Trade Finance

Financing for trade transactions also involves numerous parties including buyers and sellers, banks, insurance companies, etc, exchanging all kinds of paper documents such as Letters of Credit. Projects such as we.trade, Voltron and Marco Polo are using blockchain to digitalise this process to be more efficient while fighting fraud. 

This is particularly beneficial for financial inclusion for small to medium businesses (SMEs), for whom the cost and access to financing and cash flow issues can mean life or death. Trade finance systems can also be linked to IOT-based supply chains or logistics networks, such as triggering financing or insurance processes when goods arrive at warehouses. 

By increasing efficiency and reducing cost and risk, blockchain-based trade finance could benefit large corporations and support financial inclusion, helping more SMEs to participate in the economy.

The Way Forward

Blockchains hold much promise for making coordination across partners and ecosystems more efficient. However, the journey can be complex and requires thoughtful planning. A good reference for this is the World Economic Forum Blockchain Deployment Toolkit. 

Blockchain projects always involve multiple, potentially competing parties. Aligning everyone's common goals is always complex. It is important to consider consortium governance mechanisms, such as participation rules and data standards. Also consider any regulatory or legal requirements, such as data privacy or anti-competition. 

Another consideration is last-mile integrity – linking physical things with the digital record. For example, Everledger uses blockchain to prove the authenticity of diamonds and are not conflict diamonds, but they need to ensure the digital record refers to the correct physical stone. They use identifiers based on unique gemological properties of the stone that is impossible to fake. 

Interoperability between blockchain systems is also a hot agenda item today – let us not recreate silos in blockchain networks. Organisations such as ISO, IEEE and INABTA are developing standards for the blockchain economy. Finally, as any technology, good system design such as cybersecurity and usability are key, especially reflecting needs for inclusive use. 

Blockchain has graduated beyond its hype peak and holds much promise for IR4.0, and should be in serious consideration by any organisation, more so in our post-COVID-19 world 

As the World Economic Forum stated:

“The case for blockchain is stronger as the COVID-19 pandemic underscores the need for more resilient global supply chains, trusted data and an economic recovery enabled through trade digitisation.”2