This article is part of a series of informative texts to be published by Forética with the aim of delving deeper into the ethical, social and environmental aspects of technological transformation, to raise awareness of the challenges and opportunities offered by the future of work and to analyze how leading companies incorporate technology, considering ethical criteria in their decisions and maximizing positive impacts, both environmental and social. These texts are part of the Enterprise 2020 project. Future of work
We often talk about the disruptive potential of technologies. Of their ability to bring about change and break with previous models. Often, too, this potential falls short of what is promised. But there is one technology that is attracting attention for its great power to change. A system that makes it possible to ensure the traceability of products and food around the world and to put an end to bank fraud. It promises efficient and decentralized energy management. Or that machines will be able to sign legally valid contracts.
The blockchain or blockchain technology was born from the hand of Bitcoin and has become famous from the hand of cryptocurrencies. But more and more industries are experimenting with this data storage, transmission and protection technology. Its application brings with it significant challenges, but the opportunities it opens up for companies and societies are also outstanding.
What is blockchain?
The first challenge presented by blockchain technology is to define it simply. It is, broadly speaking, a distributed, decentralized database used to record transactions of any kind, including currencies, assets, property or labor. "Blockchain is also an interconnected and expanding list of records stored securely in a peer-to-peer network. Each participant in this network can query the information, which builds trust in the system," they note in the report 'Building Block(chain)sfor a Better Planet', prepared by PwC and the Stanford Woods Institute for the World Economic Forum.
In this blockchain, each transaction is authenticated and no changes can be made without altering the entire database, making it virtually unalterable. The need for consensus between the two parties signing a transaction on the blockchain system makes it possible to dispense with an intermediary to authorize the transaction. "The technology behind Bitcoin has the power to reduce intermediary costs and revolutionize opaque processes, increasing their efficiency," the report explains.
Trust, transparency, efficiency: the impact on the enterprise
What began to take shape relatively recently around cryptocurrencies (Bitcoin was born in 2009), has been conquering the financial world. Today, it has applications in more and more industries and business environments. As the PwC report by the Stanford Woods Institute points out, the blockchain is defined on the basis of three aspects: trust, transparency and efficiency. And it is through them that this technology is revolutionizing the enterprise.
According to the 'Closing the Circle' report by Forética's Circular Economy Action Group, blockchain technology is key to the transformation of companies towards the circular economy. "It is a tool to transform certification processes and traceability for all types of products. This system makes it possible to track products from producer to consumer, without the need for third parties and ensuring that data associated with the process cannot be manipulated (applicable for example to energy consumption, carbon footprint or losses in the value chain, among others)," the report states.
Moreover, for technology consultant Íñigo Molero, these characteristics of blockchain, together with its transversality, open the door for this technology to revolutionize and optimize corporate social responsibility. Not in vain, aspects such as veracity, transparency, trust and security are common to blockchain and CSR.
The challenges of a complex technology
Deploying blockchain technology presents significant economic, business and, above all, sustainability challenges. As its applications are cross-cutting, so are its challenges. The World Economic Forum defines the following challenges of blockchain technology.
- Adoption challenges. The low confidence of the general public in the system, its difficulties of use and the lack of knowledge hinder, for the time being, its large-scale implementation.
- Technological barriers such as difficulties of scale or their limitations in handling large transaction volumes.
- Cybersecurity risks. Although it is a distributed and encrypted database, it still has some vulnerabilities to resolve (such as those presented by the authentication systems).
- Legal and regulatory challenges. The absence of legal frameworks is practically total. Added to this is the difficulty of deploying a global system on a planet with a multitude of different national and regional regulations.
- Energy challenges. One of the most talked about challenges lately. Blockchain validation processes require a large number of computational processes and are very energy intensive. The Bitcoin system alone consumes, as of today, 0.35% of global energy. Or in other words: as much energy as a small country like Austria needs.
Opportunities on all fronts
Blockchain technology has the potential to help solve some of our world's greatest social, environmental and economic challenges. At the opportunity level, these are broadly divided into economic opportunities and environmental opportunities.
According to McKinsey's 'Blockchain beyond the hype' report, the main impact of this technology (and the most immediate) at the business level is cost reduction. Not only because it makes it possible to dispense with the middleman, but also because it has the potential to generate new business models. In addition, the technology itself allows companies to maintain control, even though the database is decentralized. This facilitates its adoption in many businesses.
For McKinsey, the blokchain also opens up the opportunity to create cross-industry standards that generate trust among all players; something very important, especially in those industries with complex supply chains (such as automotive or aeronautics).
On the other hand, as reflected in the paper 'Blockchain challenges and opportunities', blockchain technology is key to the development of the Internet of Things (IoT) as it facilitates collaboration and contracts between machines without human intervention and in a secure manner. Finally, it also brings opportunities for companies to ensure data privacy and reduce cyber risks.
Companies not only have business opportunities ahead of them, but this technology also opens windows to greater social engagement and to having a positive impact on the environment. According to the report 'Building Block(chain)s for a Better Planet', these are the main business opportunities for improving the situation of the planet as a whole.
- Fully transparent supply chains that allow product traceability from the origin. This would lay the foundation for more sustainable production.
- Decentralized resource management, allowing for more efficient decision-making and more flexible and dynamic processes.
- New sources of access to financing to cover the costs of environmental projects.
- Enhancement of the circular economy, enabling the tracking of resources and materials throughout the product life cycle.
- Transformation of energy markets through decentralized and localized energy management.
Use cases that are already real
Blockchain technology is still in its infancy and faces significant challenges. However, a significant number of companies are betting on it to revolutionize different industries. For example, since the beginning of 2018, IBM and shipping giant Maersk have been implementing a blockchain-based supply chain management system. This allows them to keep all information about containers of goods in a secure database, decentralized and available to all actors involved, such as customers or customs authorities.
There are also cases in Spain. Alastria is a national blockchain network promoted by companies and institutions. Its objective is to establish a semi-public infrastructure for this technology, in accordance with European regulations, allowing all types of companies to access the opportunities offered by blockchain.
At Forética, as part of our Enterprise 2020 project, we are compiling the best business solutions that apply technology to solve sustainability challenges. Thus, technology such as blockchain is applied to respond to challenges such as information exchange, optimization of supply chains, or regulatory compliance.
Article with the collaboration of Juan F. Samaniego
Enterprise 2020 Team. Future of Work:
- Germán Granda, General Director of Forética
- Raquel Canales, Forética Project Manager
- Nuria Combrado, Forética's Communications Manager
- Ricardo Trujillo, Forética Senior Manager