Political economist Francis Fukuyama once predicted that social capital will be as important as material capital in the future. Only a society with high social trust can create large-scale institutions to participate in the new economic competition.
Twenty years later, an incredible tool has strengthened the foundation of society from the perspective of every transaction, that is, blockchain technology. Originally named as the underlying data technology of cryptocurrency bitcoin, the current blockchain technology has gone beyond the scope of currency and started to solve the problem of global transactional social trust.
Blockchain is a shared data layer of encryption protection, which can be used by enterprises to track asset ownership in a digital way, cross the trust boundary, and open a new cross agency cooperation opportunity and imaginative new business model. As a source of shared trust, it can expand the scope of digital transformation from a single company to a process shared with suppliers, customers and partners.
So how does blockchain work?
Building a smart ledger of trust and a single source of truth
Imagine a familiar ledger, such as an excel form. Blockchain is like this table, but there are several different keys. First, it is immutable and the data cannot be replaced. Only new transactions can be recorded in it, such as accounting in and out. Secondly, block chain forms are protected by encryption technology. It ensures that data is not tampered with from a high level of trust. Third, forms are shared among multiple participants. Finally, the blockchain table has a mechanism called consensus algorithm, which can decide what can be added to the table through the mutual agreement between users.
On the basis of account books, many blockchains will provide “smart contracts”. These represent business processes with code, not only providing verifiable data among multiple parties, but also verifiable processes. The organization can reach a consensus on the contract, determine how to complete the business, and follow the verifiable participant interaction record. After full automation, blockchain can ensure consistency in transaction execution, help resolve disputes, increase reliability, provide end-to-end transparency, and make better business decisions.
For the benefit of enterprises and society
Imagine an ice cream company selling products to the world. The route from the farm to the store may be different and may combine trucks, ships, planes and warehouses.
Blockchain based solutions capture product information, including participants in the supply chain and other areas. Blockchain data serves as a de facto source of origin for products, from dairy cows to vanilla farms.
Blockchain can record registration certificates that are important to supply chain participants, manufacturers and consumers, including ensuring that farms use sustainable processes and meet fair trade norms. Because blockchain can save the content of business process in smart contract, it can automatically stipulate, monitor and execute the agreement between supply chain participants. For example, when the goods are transported to the final consignee, the smart contract can automatically trigger the payment. When there is a dispute, the contract can control how to solve the claim between the participants.
The automatic triggering and execution of blockchain contracts may help the whole country avoid the humanitarian disaster caused by economic transactions, such as the milk scandal of 300000 victims in 2008, forced child labor or the recent Isis threat to poison the European food supply chain.
Support supply chain with Internet of things technology
The combination of Internet of things and blockchain technology provides a new way of supply chain monitoring and compliance. Take the ice cream company for example: ice cream is just a product, its security is affected by the storage environment. Ice cream in transit melts and freezes, making it unsafe to eat, but there are no obvious signs, so consumers take risks. For a long time, ice cream companies’ transportation partners may not be aware of this problem or willing to share this information with ice cream companies and consumers, because it will lead to financial responsibility.
With the solution based on blockchain, the sensor can provide temperature and humidity information to the smart contract, which monitors the environmental status according to the agreement reached by the supply chain participants. If the temperature and humidity are outside the acceptable range, it will trigger compliance issues in the smart contract. Because all participants agree to take the blockchain as the sole factual basis, ice cream companies can get real-time warnings, so as to recall products from the supply chain and hold the participants who violate the transportation agreement responsible.
Internet of things sensors combined with blockchain can help the pharmaceutical industry to solve large-scale public security problems fake drugs. Counterfeit drugs are estimated to cause about $200 billion in losses to the industry each year. One third of drugs in developing countries are fake drugs, 30% of which have no active ingredients, so 3M and other companies began to introduce blockchain based solutions to detect and prevent information tampering, to solve basic problems and public health problems.
Trusted digital world
The real function of blockchain technology needs to be combined with its characteristics in different institutions. Consider a scenario where John, the driver of Seattle’s popular carpooling service, is a great driver and has won praise from customers. John wants to buy a high-end car to provide better service, but he doesn’t have enough money. He needs to show his driver’s license, insurance and a loan.
Now, automakers, banks, insurance companies and government agencies are strengthening digital services and functions. If their digital transformation looks at opportunities outside the institutions and thinks about how to realize the smart economy, what will happen?
The route of “smart economy” enables automobile manufacturers to realize that the millennial generation is gradually buying fewer cars and begin to explore new models of automobile sales and leasing. They created smart contracts to work with carpooling services to take on loans for qualified drivers.
John applied for a car rental from a car manufacturer with a smart contract. The smart contract of the application process refers to multiple credit sources:
1. Government identification of John
2. The Ministry of transport certifies that he currently has a driving license for such a vehicle
3. The car sharing service proves that he is currently employed and determines his income
4. Carpooling service certification driving rating (driving times, frequency, fees, etc.)
5. John’s Bank certifies his savings and ability to pay
6. Vehicle manufacturer’s certification of vehicle use records and component sources
Then the algorithm is used to prove the data and determine which service is provided to John. If the score is low, John can get automatic lease based on smart contract at reasonable cost. If the score is high, John can get the car free of charge and automatically distribute part of the income to the manufacturer or loan service company according to the mortgage terms. If the score is very high, John can get the car for free, and pay for all the gas and road tolls with his income.
John also needs new car insurance. Insurance companies can access the car service history, John’s employment records, John’s driving records, and generate customized car insurance quotes. Like road tolls and rental fees, smart contracts can be linked to fees paid to automakers in driving revenue. Inter agency coordination through non tamperable ledgers allows them to increase the speed and efficiency of the execution of transactions.
From the perspective of public safety, government regulators and car passengers can trust that driving is safe. There is evidence and transparency to show that John has passed the criminal investigation, has a valid driving license, has community driving experience, has not exceeded the legal driving time, and has a good driving reputation. They can also believe that John’s car is safe, well maintained and not eligible for recall. The government can synchronize the blockchain content of carpooling service, conduct audit, ensure compliance and reduce law enforcement costs.
No more borders
With billions of dollars invested in blockchain, some people are beginning to understand how the technology can reshape industries and organizations. The potential impact of blockchain urges enterprises to reflect on the existing business model, reexamine opportunities that were previously considered infeasible, and explore new positions that may be beneficial to society and influence boundaries.
A new global intelligent economy is being built on a trusted and innovative digital platform. The border has been broken, opportunities tend to be unlimited, and new directions and possibilities appear. Growth thinking and mission are needed to activate incremental change. The organization that can carry out self transformation flexibly, can not be disturbed by noise, and can quickly unlock new business opportunities with commercial feasibility, so as to flourish and develop in the digital era.