Banding together on Blockchain

Blockchain technology derives its value from network effects, compelling CIOs and their companies to work with partners and even competitors to develop the standards and infrastructure required for commercial success.

Blockchain—the digital distributed ledger technology that underpins bitcoin—is evolving rapidly. The promise of more secure, transparent, auditable, and efficient digital transactions and interactions could transform many industries, from financial services to health care.

But unlike many other tools in IT’s portfolio—accounting software or HR systems, for example—blockchain technology requires buy-in from users outside the enterprise, both partners and competitors, to deliver its value. Indeed, the benefits of blockchain increase as more parties participate in its use.

At their core, distributed ledgers are business-to-business workflow tools, necessitating collaboration among users. That’s why a growing number of companies that are seeking to develop and deploy blockchainenabled solutions are joining distributed ledger consortia. These groups of companies are joining together to set standards, develop infrastructure, and execute transactions. More than 40 blockchain consortia have been formed globally, according to Deloitte analysis, most of them in the past six months.

Not all blockchain consortia are created equal, however. Some, particularly in financial services, are making significant progress, while others are floundering. Adequate funding, robust governance, and commitment from key companies are critical to consortium success. CIOs seeking to capitalise on blockchain’s potential to increase operational efficiency and enable new business models and client solutions can heed lessons from the first generation of these collaborative efforts as their companies consider joining or forming consortia.

The Rise of Blockchain Consortia

Some well-funded and -staffed consortia like R3, which has attracted some 100 financial industry players, have ambitious goals to deploy blockchain technology at commercial scale within the next year. So far, most of these groups are in financial services, where policymakers, regulators, and central banks are founding or joining blockchain consortia. Other industries, including health care and logistics, are beginning to follow suit.

According to a recent Deloitte survey, nearly one-fifth (18 percent) of executives knowledgeable about blockchain technology said their companies are participating in a con- sortium, while 45 percent said they are likely to join one and 14 percent are considering forming one.

Most blockchain consortia are either business-focused or technology-focused in nature. Business-focused consortia are working to build and operate blockchainbased platforms to solve a specific industry problem. For example, in January 2017, seven leading European banks launched the Digital Trade Chain, which is working on a blockchain-based platform to facilitate cross-border trade for small and mediumsized businesses.

Technology-focused consortia, on the other hand, are dedicated to developing reusable blockchain platforms based on technical standards. A number of global companies including IBM, Intel, and Daimler have joined the Hyperledger consortium, which is employing open-source collaboration to create crossindustry blockchain-enabled technologies.

How to Build a Better Consortium

The consortium approach offers enterprises a relatively low-risk way to stay current on blockchain trends, learn what competitors are doing, defend against potential new threats, and prepare to implement the technology should they decide to. Most important, however, the greater the number of users on a particular distributed ledger platform, the more valuable the technology is to all of them. Consortia members can take advantage of such network effects from Day One. To use blockchain most effectively, most companies would benefit from participating in a consortium.

However, early results of blockchain consortia have varied, offering important les- sons for CIOs considering joining or launching such an effort. In examining the progress made thus far, four success factors stand out:

• Funding. Applying blockchain technology to a business use case and bringing it into production requires significant investment in technical talent and several years’ worth of commitment to technical implementation. Only one consortium, however, has raised significant funding. R3 has brought in more than $100 million from existing members, enabling it to invest heavily in building technology.

• Membership. Some industry consortia are succeeding thanks to the involvement of industry leaders. For example, Fundchain, an international consortium of leading asset managers working to bring 401(k) plans, mutual funds, and pension funds to the blockchain, rolled out a proof of concept for a smart transfer agent in December 2016 and plans to release an initial product in 2018.

• Leadership. Certain consortia have made significant progress thanks to the outsized commitment of a single leading player. IBM is providing a significant part of Hyperledger’s codebase, while one version of the Enterprise Ethereum Alliance’s technology is based on an open-source project led by J.P. Morgan.

• Governance. Convincing competitors to collaborate is no easy feat. Robust governance structures help facilitate consensus around potentially difficult issues. Successful consortia are adopting practices to encourage cooperation, such as forming smaller subgroups to work on delineated issues and providing several options for engagement, ranging from participation in monthly calls to active technology development.

Where to begin

Dozens of new blockchain consortia are likely to form over the next two to three years. These collaborative groups will play a central role in the commercialisation of blockchain technology in every industry. However, it’s important that companies do their homework before getting involved in one.

Companies interesting in joining or forming a consortium can be clear about what their goals are at the start, and CIOs can play a leadership role in developing clarity and consensus among senior leaders about the outcomes the company is seeking. Joining a consortium to study and explore blockchain technology is very different from aggressively moving to build and deploy the technology at significant scale.

Not all consortia will lead to commercial deployments, and that is fine for members that are more interested in learning at this stage. Companies with serious commercial intent, however, may want to consider the funding, membership, leadership, and governance of the consortia they join. In some cases, it may make sense for enterprises that want to take a lead role in blockchain innovation to create their own business-focused consortium, which requires more effort but can yield more rewards as the resulting platform is monetised down the line.