Blockchain has been a focus of technologists, VCs, and media pundits for several years now. However, to date, operational deployment remains minimal. Of all enterprises already working with blockchain, only a few percent have a scale operational deployment. Blockchain has seen three stages in its short history:

• Lab testing of the technology: 2014 to 2016. Key events include the launch of Ethereum, Hyperledger, and R3
• POCs: 2016 to 2018. Key events include the launch of BaaS (IBM, Microsoft JV), B3i (insurance), Marco Polo (trade finance), MOBI (mobile DLT), IIN (interbank information network)
• Operational usage: 2019 onward. Key launches include NASDAQ LINQ, JP Morgan JPM Coin, Binance and the recently announced Facebook’s Libra.

Activities are slowly moving from exploring the technology and what it can do to finding out where it can be profitably applied to business cases.

Achieving effective operational deployment

Businesses are finding that key steps in making effective operational deployments include:

• Identifying compelling use/business cases, where key components include:
  • Business value: cost reduction needs to be significant and ongoing
  • Transaction execution speed: distributed ledger technology currently does not execute quickly. However, the evolution of private consensus mechanisms and permissioned blockchain networks, has addressed many of the concerns for DLT over speed and scalability
  • Ecosystem openness: closed systems (e.g. exchanges or closed payment platforms) are inherently more likely to see an alignment of partner goals and values
• Building the right reference architecture: an enterprise blockchain platform is more than just a blockchain technology stack. It encompasses Infrastructure (data, storage, network), security (including auditing), applications (templates, IDE, testing, integration), and operations (monitoring, smart contract management, ecosystem management) in addition to the platform itself (consensus management, smart contract execution, etc.)
• Identifying relevant partners, including product and business partners. The partners need to have as compelling a need to join as the promoter’s need, which often has not been the case
• Creating an effective governance mechanism: mechanisms require addressing the needs of regulators, participants, and customers
• Adoption: buy-in requires both a thoughtful explanation of cost/benefits and a forceful statement of ecosystem requirements for continued participation as a member. The priority for promoters of a blockchain proposal is to maintain trust while participants are undergoing the major operational changes blockchain brings.

Example of successful blockchain deployment application in Banking

So, where can blockchain be deployed effectively in an operational environment? I caught up with Capgemini recently on one of their blockchain engagements that has gained significant traction. In this case, Capgemini deployed blockchain to address KYC in the banking industry. The client is a consortium of banks that wanted to reduce the cost of its combined interbank KYC activities. Key aspects of the engagement were:

• Challenge: Banks typically conduct KYC/AML verification with manual, multi-step processes. Processes are repeated across banks and internally across departments for the same customer. The consortium wanted to simplify and automate processing to reduce cost and error rates. By sharing KYC/AML data for a given customer across departments and banks, the consortium wanted to reduce duplication of static data processing

• Scope of engagement: Capgemini designed a hybrid Hyperledger Fabric/R3 Corda solution that enables KYC data collected by one institution to be validated and shared among multiple institutions. Each participant bank can fill in the complete KYC profile with elements of their own data. The resulting KYC profile is more robust since it can be verified by more than one participating institution. Every bank shares the same decentralized master copy of KYC data
• Benefits:
  • Reducing cost from a reduction in duplicative processing and increased automation
  • Improving speed at which KYC record documentation is completed due to the reuse of static data, rather than reconstruction of data for each KYC report
  • Increasing accuracy resulting from data sharing.

The characteristics of successful deployments

The case above highlights that successful deployments of blockchain are often characterized by:

• Input processes taking data from multiple, heterogeneous sources, which are then manually processed with little standardization across internal or external silos
• Output processes delivering relatively simple, highly standardized reports (e.g. go/no go decision on doing business with this entity)
• Participants sharing the goal of obtaining the same output with no competitive pressure and proper governance mechanisms
• Blockchain technology creates a statement of record which should be used to eliminate repetitive reconstruction of static data for each transaction. This creates efficiency by eliminating steps.   

Institutions looking to deploy blockchain trial 100 POCs on average to find ~3 use cases to operationalize. By looking at the characteristics of successful deployments, institutions will be able to focus their experimentation on projects with a much higher likelihood of being valuable in a business setting.