Can Blockchain Enable Digital Transformation of Business and Society?
The current pace of development in emerging technologies such as blockchain, artificial intelligence, and big data have put digital transformation at the forefront of corporate strategic agendas. The IDC forecasts world spending on digital transformation activities will reach $1.3 trillion in 2018. However, the term itself is in danger of becoming overhyped to the point it becomes almost meaningless.
So, what is digital transformation, and what are the implications for businesses, and society at large?
Defining Digital Transformation
While there is no strict definition, most sources seem to agree that digital transformation involves a fundamental redesign of existing models and processes to create an operation that’s new and different from what came before. It should make a marked change to overall performance.
In a business context, this means introducing new processes, products and/or value to customers, enabled by new or emerging digital tools and platforms. It requires a cultural shift that looks to technology first, replacing manual and people-based operations.
In examining what digital transformation is, it can also be useful to look at what it isn’t. Many CIOs and consultants continue to refer to system upgrades, cloud migrations or siloed departmental technology interventions as part of a digital transformation. However, these changes are incremental, so they don’t fit the definition. While digital transformation is a journey and not a destination, the changes involved must be of substance to be classed as transformational.
Digital Transformation — A Short History
The terminology of digital transformation may seem relatively new, but the concept itself isn’t. Computerization and automation have already changed the world. Firstly, organizations became increasingly reliant on computers for basic tasks like word processing and managing accounts with spreadsheets.
Then along came the internet, which completely revolutionized communication. Whereas telephony, postal systems, and fax machines had previously enabled communication, they’ve become obsolete in favor of email, VOIP, instant messaging and video conferencing. Most of us carry smartphones, which can run apps for everything.
Companies that previously had IT teams dedicated to maintaining servers and other hardware infrastructure now put everything in the cloud. Marketing activities take place online and are heavily dependent on social media. Big data analytics provide unprecedented insights, offering a competitive edge. Chatbots powered by artificial intelligence are becoming more commonplace as the first line of customer support. Manufacturing is making increasing use of robotics. Governments can run elections using electronic voting systems. Some countries like Estonia or Singapore have mapped out their path to full digitization.
Digital Transformation in Context
The scenarios above take an aerial view of how digital transformation has diffused throughout business and society as a whole. However, it’s useful to take a few examples of digital transformation in context.
Porsche is blazing a digital trail among car manufacturers. The company has made public its commitment to “become a leading provider of digital mobility solutions in the premium automotive segment.” It will achieve this by interconnecting its products and services, digitizing the customer sales experience and implementing state-of-the-art workplaces.
Another example is Walmart, moving its supply chain to a distributed ledger-based system. Last year, the company had conducted an experiment to pinpoint the source of some of its own sliced mangoes. It took seven days to locate the farm in Mexico where the mangoes were grown. Walmart believes that the tracing time will be reduced to seconds with the new technology, a blockchain-based system powered by IBM. By the third quarter of 2019, more than 100 of Walmart’s suppliers will be using the platform to log the movements of spinach and lettuce.
On the other hand, there are some famous examples of companies that have failed to keep up with the imperative for digital transformation. Kodak seriously underestimated how fast the move to digital photography would happen in the early 2000s. The company’s strategy failed to keep pace with markets, and by 2012, it was on the verge of bankruptcy.
Blockbuster Video was another example. At one time, the company passed up on the opportunity to acquire Netflix for $50 million. Now in the age of video streaming, nobody rents DVDs anymore, and Blockbuster has long since gone bust while Netflix has firmly established itself as a market leader.
Where Does Blockchain Come In?
Blockchain is only one component of a digital transformation, but it’s unique properties mean that it can function both as a standalone technology and as an enabler of other emerging technologies such as artificial intelligence.
The Walmart case study is a good example of how blockchain can be transformational in and of itself. Many other companies such as Maersk are also using blockchain in a supply chain context. The technology is also currently transforming the area of trade finance, with stock exchanges including those in Switzerland and Australia implementing blockchain to some extent.
Taking Decentralization Further
Decentralized autonomous organizations (DAOs) are now possible using smart contracts on a blockchain platform. A DAO has no central ownership or hierarchy. Each participating member of the organization holds equal voting rights, with all policies, voting rules and agreements coded onto the blockchain itself. In the future, it’s possible that entire companies could be run in this way.
The decentralized nature of blockchain is also enabling other emerging technologies. Although the full extent of these technologies is yet to be fully embraced by the corporate world, there are several cutting-edge blockchain projects in this space.
IOTA (Internet of Things Alliance) is using directed acyclic graphs (DAGs), which are a more advanced, non-linear iteration of distributed ledger technology. Currently, IoT devices can only connect via a centralized network meaning their interactivity is limited to the speed and processing power of the servers to which they connect.
IOTA aims to overcome this, using the decentralizing power of its DAG to enable IoT devices to connect to one another directly. IOTA is involved with several initiatives including a smart city project sponsored by the EU, and a proof of concept with Volkswagen for over-the-air firmware updates of vehicles.
Similarly, in the area of artificial intelligence, SingularityNET offers intriguing possibilities. The company is developing a decentralized marketplace of AI services, essentially creating a network of intelligent machines that are connected to, and can learn from, one another.
A Blockchain Enabled Society
With these technologies now starting to take off, then consider the extent to which blockchain could transform both business and society. Imagine a retailing company set up as a DAO. There is no central ownership, just a group of shareholders whose stake in the company is represented by digital tokens. Each token-shareholder has smart contract-enabled voting rights over what to sell, and where to sell it.
Smart contracts govern the ordering process, which is done entirely online. Payments are held in escrow by the smart contract until the customer receives their order. The goods are stored in warehouses, with robots picking and packing. These robots are connected to one another, and to a fleet of delivery drones, by IoT technology. If there are any issues, the customer can chat online to an AI chatbot, which will trace the order using machine learning algorithms to find out what went wrong.
Similarly, imagine a futuristic version of Uber. Anyone with an autonomous, driverless vehicle to lease out can do so using a decentralized blockchain network where they connect to potential customers. Once a potential customer agrees to pay, the car travels to their location using geolocation services. AI will navigate the journey, obey road rules and avoid collisions. A smart contract uses IoT to unlock the vehicle and let the passenger in once the payment is authorized.
Opportunities and Challenges
These examples illustrate the extent to which blockchain can transform current paradigms. The opportunities of living in such a decentralized society are more than just convenience and efficiency. Decentralization means peer-to-peer connectivity, eliminating the need for central entities such as brokers or, in the example above, companies such as Uber.
A move to a decentralized digital society could result in more equality, as we become more accustomed to the idea of everyone having an equally balanced vote rather than centralized power bases. It can provide additional opportunities for wealth creation, as money and assets are diverted away from centralized companies and entities. Corruption could become reduced or even eradicated, as power is devolved to all members of society.
On the other hand, decentralization comes with significant challenges. On many blockchains actions on a are generally irreversible, and code is law. That means it can be very difficult, if not impossible, to undo a decision once it’s taken. For the shareholders of shareholders to a decentralized company, this could be disastrous if new information emerges after the fact, or circumstances change. However, the team at Apla blockchain has come up with the concept of smart laws which provides a solution to this problem.
This becomes even more significant considering that code is written by humans and can be subject to flaws and bugs. The DAO was a real-life example of a DAO where members had invested funds, which were later siphoned off by some external party who exploited a weakness in the underlying code of the Ethereum-based smart contracts. In the end, the entire Ethereum network was rolled back to reverse the theft.
Similarly, malicious actors could congregate in sufficient numbers to overpower a decentralized network. In blockchain terms, this is known as a 51% attack.
A further challenge comes in the form of decentralized governance at scale. When members are required to vote on every decision, and every member can put forward proposals for decisions, how do you keep members engaged and avoid decision fatigue once the organization reaches a particular size?
The Journey is Underway
At least for now, a fully decentralized society seems a long way off, and in light of the potential pitfalls, perhaps that’s not such a bad thing. Nevertheless, blockchain is already a critical component in the digital transformation journey of businesses, governments and other organizations, offering some radical opportunities to change ways of operating. While the world is still catching up with the opportunities provided by blockchain and other emerging technologies, there is much to look forward to.
Sarah is a freelance writer, researcher, and blockchain expert who’s written more than 200 articles covering blockchain for Coincentral.com and for tech startups. She is also a full-time traveler and foodie.
Blockchain Business Review from Apla provides high-quality educational material from the world of blockchain to inform the business community of the competitive advantage that can be gained by integrating distributed ledger data storage within organizations. Our mission is to promote knowledge about blockchain and its uses in both the private and public sector and demonstrate the value of blockchain integration.