The transformative power of blockchain
Cryptocurrencies aside, blockchain technology is set to transform a host of industries beyond finance.
Advocates are adamant that blockchain technology is positioned to change the very nature of work for myriad industries and people in coming years. It’s certainly clear that the burgeoning technology could streamline many areas of business thanks to its open and distributed nature. Faculty and alumni interviewed for this story describe how it’s already making inroads in regulatory compliance, supply chain management, recruiting, and healthcare.
In recent years, “blockchain” has become synonymous with “cryptocurrency,” but its applications reach much further than financial transactions. While it’s true that cryptocurrencies constitute the most immediate and popular applications of blockchain today, the technology is poised to disrupt virtually any industry in which intermediaries are required to verify transactions. From startups like recruiting company Blockgram, which uses blockchain to hire talent, to large corporations such as Walmart, which is applying blockchain to reshape its supply chain, businesses are getting serious about blockchain.
“Blockchains are essentially tools for minimizing the trust assumptions and preexisting relationships required to ensure equitable commerce,” explains Ari Juels, professor at the Jacobs Technion-Cornell Institute at Cornell Tech and computer science faculty member at Cornell University. “They can enhance their transparency and, in the case of fledgling companies without established reputations, enable the launch of businesses that rely more on code than on people.”
At its core, blockchain provides an indisputable, unchangeable record of business designed to distribute the responsibility of verifying every step of a deal, thereby shaking up the very nature of work by making it more secure, transparent, and eventually, more seamless. Even in its infancy, the technology is already shaking up the tech world: According to research from MarketsandMarkets, the blockchain market is poised to reach $7.7 billion in 2022, which is driving many companies, including Oracle, Microsoft, SAP, and IBM, to move quickly to make blockchain services a priority.
At the end of last year, Oracle introduced Oracle Blockchain Cloud Service to enable its customers to transition existing applications to blockchain, while SAP and Microsoft have made moves of their own to make it easier for clients to deploy blockchain applications in the cloud. IBM has also long been a proponent of blockchain adoption and continues to double down on the technology. The tech behemoth is a part of the Linux Foundation’s Hyperledger consortium, a nonprofit organization that is bullish on blockchain technology and aims to create standards for blockchain technology use. To spark interest in the technology, Hyperledger offers customers a free trial of blockchain in its cloud.
With infrastructure and support from these massive players, blockchain is ripe for widespread adoption, and companies aren’t wasting any time. According to new research from Deloitte, 74 percent of large companies (with sales over $500 million) see a “compelling business case” for blockchain technology.
“Blockchain has the potential to be quite disruptive and make the way people work fundamentally more transparent and collaborative in the future,” says Drew Pascarella, MBA ’01, Rempe Wilson Distinguished Lecturer, senior lecturer of finance, and faculty director of Johnson’s fintech intensive program, offered on the Cornell Tech campus. Indeed, from supply chain management and regulatory monitoring to recruiting and healthcare, organizations are applying blockchain to their business models to revolutionize how they track and verify transactions.
Simplifying Regulatory Compliance
Blockchain technology offers numerous advantages, but its decentralized nature and immutability as a distributed ledger is a leading factor that makes it attractive, says Gerhard Grueter, MBA ’02, managing director at Lawson Connor, a regulatory infrastructure and managed compliance firm. Information and transactions recorded in a blockchain are not centrally stored or managed by a single company, organization, or government authority. “The ‘aha!’ moment for most businesses comes when they realize that blockchain provides a high-quality audit trail and allows them to track all transactions, changes, or other actions carried out by participants,” Grueter explains.
For Grueter’s compliance work, smart contracts constitute one of the most critical applications of blockchain. Smart contracts enable companies to digitize almost any asset or task that is required for buying, selling, or otherwise completing a transaction. These contracts automate verification throughout the workflow and ensure that every component is carried out effectively and securely. Built on if/then logic, smart contracts specify a set of coded steps, with each subsequent step taking place only if the step before it was completed properly.
Typically, regulation compliance is an arduous legal process, requiring a great deal of documentation requests and verification processes, as well as proof of identity for all parties involved. These processes are clunky, time-consuming, costly, and complex for many, which is why they often turn to a tech-enabled provider like Lawson Conner. With smart contracts, however, the processes are completed via if/then conditions and algorithms, making the execution much faster and efficient. Updates throughout the verification process happen in real time as smart contract conditions are met and are visible to all, making it easier to detect potentially fraudulent actions. Plus, actions can’t be erased, which makes wrongdoers easier to pinpoint and ultimately any fraudulent transactions would not be verifiable or accepted by the rest of the chain.
“Blockchain technology provides the opportunity to democratize information and increase transparency for all parties. Everyone can have full visibility into the entire compliance process at every checkpoint up until the point where all of the regulator’s requirements have been met,” Grueter explains.
Smart contracts make regulatory reporting inherently simpler as well, since blockchain is, by nature, made up of shared data. This means that regulators don’t have to collect and analyze the data themselves; rather, transactions are documented securely in an unalterable ledger, Grueter explains. “Blockchain is just the next step after the internet in digitalization. It’s a natural evolution of what is already available to us, and it’s going to be a game changer in the world of regulation compliance,” Grueter says.
Pascarella agrees: “Though cryptocurrency gets all the hype, smart contracts are among the most immediately applicable and interesting use cases that currently exist for blockchain.”
Streamlining Supply Chain Management
Blockchain has the potential to shake up other industries where intermediaries are tasked with recording and verifying data points as the basis for a particular transaction, says Rita Golub, MBA ’13, co-founder of Top Ledger LLC, a consulting firm that works with companies that have implemented blockchain. Supply chain management, for example, stands to benefit greatly from blockchain adoption, largely because many parties are involved, and each is tasked with confirming that the transfer of goods has been carried out correctly up to their assigned point.
The food services industry — where the supply chain is particularly complex and requires the preservation of perishable products — is a prime candidate for blockchain use.
“Managing all the touchpoints on the supply chain into a smart contract eliminates the need for manual or human verification,” Golub explains. “By creating smart contracts for a supply chain, you’re putting each touchpoint into a contract where B cannot happen without A and so forth. Food can’t leave the truck if the temperature was too high and created a risk of spoiling, for example.”
For Walmart, applying blockchain to supply chain management solves a very real business concern: quickly being able to pinpoint the source of a product contaminated by salmonella, E. coli, or something else that’s harmful for consumption. When Walmart’s vice president of food safety Frank Yiannas challenged his team to find where a batch of mangoes originated, it took the team nearly a week. But if this were a real-life situation where people’s health was at stake, the company wouldn’t have been able to wait that long before taking action: Walmart would have to immediately pull all mango products from its shelves as a precaution, which would be costly.
In an attempt to tackle the issue, the company participated in an experiment with IBM to put its supply chain on a blockchain (“Why Big Business Is Racing to Build Blockchains,” by Robert Hackett, Fortune, Aug. 22, 2017.) The Walmart-stocked mangoes’ journey from farm to store was then digitized and tracked, with every step of the process verified through the blockchain. With the blockchain in place, identifying the source of the mangoes now simply required entering the fruit’s lot number into a web portal and voilà, every key piece of data — including when it was harvested, when it underwent decontamination processes, when it passed through U.S. Customs and Border Protection, and when it arrived at a Walmart store — was visible, all within seconds.
Applying blockchain in this way could add efficiency, cut costs, and allow supply chains to scale in a way that wasn’t possible before. In the past, the industry has tried using RFID tagging on inventory to achieve some of the same tracking benefits that blockchain now promises, but RFID sensors were cost-prohibitive at scale.
“Blockchain will allow companies to work with lots of small suppliers. A company engaged in procurement of fair-trade coffee from farmers all over the world finds it difficult to trace the provenance of its procurement,” says Vishal Gaur, Emerson Professor of Manufacturing Management and associate dean for MBA programs at Johnson. “With blockchain, that becomes possible.”
Beyond influencing individual companies’ supply chain management, blockchain has the potential to impact global trade. Over $4 trillion in goods are shipped each year, with 80 percent of these goods being carried by the ocean shipping industry in international waters. The cost of the legal and regulatory documentation associated with this process is astronomical, adding up to nearly one-fifth of transportation costs. Reducing the cost and streamlining regulation could boost global trade by nearly 15 percent, according to the World Economic Forum. And blockchain is helping in this regard.
Earlier this year, shipping giant Maersk teamed up with IBM to form a joint venture focused on developing a global trade digitization platform that would leverage blockchain — along with additional cloud-based, open-source technologies delivered via IBM Services, such as artificial intelligence (AI), the Internet of Things, and analytics — to enable companies to more efficiently track the supply chain of goods between international borders and regulate trade from a legal perspective.
“This new company marks a milestone in our strategic efforts to drive the digitization of global trade,” said Vincent Clerc, chief commercial officer at Maersk in a company statement. “The potential from offering a neutral, open digital platform for safe and easy ways of exchanging information is huge, and all players across the supply chain stand to benefit.”
The distributed nature of blockchain also makes it a viable alternative to more established tools used in recruiting and talent acquisition, thanks to the advent of decentralized apps (dapps) — open-source applications that leverage blockchain.
Blockgram, a recruiting and talent acquisition agency for blockchain and financial services technology companies, uses a proprietary human capital search platform dapp to first locate and then screen thousands of candidates for its clients. “We use decentralized apps and smart contracts for recruiting actively to pair organizations with prospective candidates,” says Basel Ismail, MBA ’16, Blockgram’s co-founder and CEO. “There’s a near zero percent service fee when you [use a dapp to hire] individuals,” Ismail says, while posting job openings on other platforms can be costly. Besides the cost advantage, Ismail says using dapps for hiring increases efficiency: Because blockchain adds transparency to shared processes, candidates know exactly where they are in the hiring process in real time, as do employers that work with recruits to find talent.
Blockchain technology can help with other aspects of the hiring process beyond recruiting. Before candidates receive job offers, many have to go through detailed background checks and other verification processes. Thanks to blockchain, hiring managers and HR teams won’t have to manually track and shepherd this lengthy process because candidates will be able to use dapps such as Civic or Evernym to verify their identities and store them using blockchain before receiving a job offer. Their addresses, employment history, educational information, Social Security numbers, and citizenship status will all live prevalidated, secure, and ready to access with their permission.
Onboarding, another component of the hiring process that consists of many steps, can also be automated using smart contracts. Think supply chain management, except instead of transporting a product through a supply chain, companies will be able to guide new hires through onboarding.
Taking on the Opioid Crisis
Beyond some of the “low-hanging fruit” for blockchain use, there are other somewhat unexpected areas that stand to benefit as well. For example, blockchain can have an impact on the healthcare industry by tackling the opioid addiction epidemic. More than 33,000 Americans died of drug overdoses involving opioids in 2015 according to a November 2017 report by the Council of Economic Advisors (CEA), a White House agency. The same report puts the economic cost of the opioid crisis in 2015 at $504 billion, a figure six times higher than previous estimates because the CEA included the value of lives lost in its accounting in addition to the costs of healthcare (including treatment for addiction), productivity loss, and legal costs associated with criminal possession of unprescribed opioids.
Where does blockchain come in? In 2013, the U.S. Food and Drug Administration enacted the Drug Supply Chain Security Act (DSCSA), which proposes steps for developing an “electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United States.” Blockchain could provide the technological infrastructure needed to bring this plan to life, explains Mark Treshock, MBA ’12, IBM’s global blockchain solutions leader for healthcare and life sciences.
“Blockchain has the potential to reshape how pharmaceuticals are tracked and traced,” says Treshock. “It offers shareability, consensus, and an unchangeable record for the prescription supply chain.” Not only does using blockchain make it simpler to track compliance and manage the supply of drugs to the individuals they were prescribed to; it also promises to reduce costs through increased supply chain efficiency and rebate management.
“Blockchain is getting traction relatively quickly, and if it continues on this track, then pharmaceutical companies could put blockchain to work way ahead of the 2023 deadline that the FDA has put in place for implementing the DSCSA,” Treshock says.
IBM is working with pharmaceutical companies to build and test blockchain-based applications for drug management that could send shockwaves throughout the healthcare industry — in a good way.
The Future of Blockchain
Despite the potential of blockchain technology, there are limitations and concerns surrounding it as well. Even in the business community, there’s still confusion around what blockchain actually is, which leads to hesitation, according to Juels. This will change with time, however, he predicts. “Use the term ‘business logic automation’ rather than sexier terms like ‘blockchain’ or ‘smart contract,’ and people will get a clearer idea of the prospective benefits,” he advises those in the space.
Business schools will also play a role in blockchain’s growth. “The purpose of a business education — in addition providing a foundation of business acumen — is to empower students and help them develop a fluency in new technologies and trends. Blockchain is a key new technology, so it’s important to immerse the next generation of business leaders in it as part of their MBA training,” says Pascarella, whose fintech intensive includes a course on blockchain and cryptocurrencies.
The lack of regulation is a concern often cited by blockchain skeptics, but as it becomes a more established technology in the world of financial services, “regulation will come” and expand to other areas of business as well, according to Gaur.
By all accounts, blockchain is still in its infancy. But, interest in blockchain and its popularity are growing. Golub and her co-founder at Top Ledger, Nina Knox, have experienced a notable increase in interest from existing organizations looking to apply blockchain technology to their business and from startups aiming to make blockchain a foundational part of their business.
“Up-and-coming businesses as well as established companies are looking for use cases and ways to implement blockchain in a way that makes sense,” Knox says.
Still, blockchain isn’t for everyone. Gaur cautions companies against getting swept up in some of the excitement surrounding blockchain and assuming that it’s now a must-have for their company. “Familiarize yourself with use cases of the technology. Look at previous new technology applications, and look for sources of advantage,” he recommends.
Of all the difficulties that lie ahead for blockchain adopters, the toughest one will be determining how to extract business value. “There are a lot of opportunities surrounding it, but it’s not always the right tool to solve your business challenge,” Knox says. “As with any emerging technology, understand the pros and cons before you invest.”
Illustration by Eva Vázquez
How smart contracts can protect farmers
Sam Haveson, Alan Lau, and Vince Wong, all MBA ’17 Johnson Cornell Tech graduates and Emerging Markets Institute fellows, researched and wrote a paper about the opportunities blockchain technology offers to protect farmers from weather-related volatility.
Their paper, “Protecting Farmers in Emerging Markets with Blockchain,” cites smart contracts farmers are already using that help to protect them from weather crises. Processing such claims “is often a slow process and hinders farmers when they need coverage the most,” the authors write. “Smart contracts will create major improvements in the claims processing system. In the event of a natural disaster, weather data will be proactively used to trigger conditions and rules to begin issuance of capital for claims.”
Such smart contracts are disrupting and transforming the crop insurance industry. “The insurers are able to avoid the operational burden of processing a large volume of claims because of the automated processing afforded by smart contracts,” the authors write.
Not stopping at their analysis of where in the world farmers would benefit most from such a system, the authors proposed an app they dubbed SmartCrop, an “Android-based mobile platform leveraging smart contracts and intelligent weather prediction to help farmers hedge against crop volatility.” Designed for progressive farmers in rural China, a country with a strong commitment to blockchain development and a mature agricultural insurance market, SmartCrop’s target user would have access to a smartphone and a bank account and a clear need for weather insurance. The authors’ product proposal includes details about SmartCrop’s interface, architecture, go-to market strategy, and implementation plan.
Photo ©Getty Images/Helminadia
Blockchain and Innovation Club
When Isar Flis and Siddhesh Amarnath, both MBA ’19, started discussing blockchain and its business impact with fellow classmates at Johnson in the fall of 2017, they quickly realized there was enough interest to launch a Blockchain and Innovation Club— so they did. Thirty-five people came to their introductory information session on March 8, 2018, including students enrolled in the investment banking, consulting, and digital technology immersions and several students from other Cornell schools. Now, the club boasts 103 members.
“Blockchain is a popular buzzword, so people want to gain more information about it, understand what it is and how can they actually use it,” says club president Flis, who also heads strategy and operations at Agoras, a $70m project based on blockchain and AI.
The club’s initial information session focused on the difference between blockchain and bitcoin, the cryptocurrency market, and business case uses of blockchain in specific industries and applications. In addition to considering blockchain-related security and privacy issues, discourse also touched on the dark side of blockchain, including the Silk Road — the online black market best known for peddling illegal drugs that was launched in 2011 and shut down by the FBI in 2013, then revived and shut down again in 2014, with the owner arrested, convicted, and sentenced to life in prison. “We discussed that particular case and how law enforcement can eventually identify people involved in these transactions,” says Amarnath.
“Our fist information session was a success and our next steps will be to bring in alumni and other practitioners representing banks and consulting firms to share their knowledge and experience with blockchain,” says Flis.
Johnson’s new fintech intensive
Drew Pascarella, MBA ’01, Rempe Wilson Distinguished Lecturer and senior lecturer of finance at Johnson, says he was “thrilled, proud, and humbled to lead Johnson’s inaugural fintech intensive.”
To determine how best to teach fintech, Pascarella, who also leads Johnson’s investment banking immersion, “took a page from the startup playbook” and sought input from recruiters to learn what they look for in fintech-focused recruits.
In addition to the cross-disciplinary management skill set Johnson MBAs are known for, says Pascarella, recruiters wanted “students who were fluent in the language of fintech, understood the drivers behind the disruption, and were able to hit the ground running in the fastest-moving industry in the world. Our solution? Immerse our students in fintech in the form of an intensive, which is modeled after Johnson’s pioneering and highly successful immersion learning programs.”
The seven-week fintech intensive, offered for the first time in the spring of 2018 at Cornell Tech in New York City, exposes students from all three of Johnson’s residential MBA programs — in New York and in Ithaca — to startup ideas and ventures, technical concepts, and real-world case studies of technology applications in multiple areas of the financial services industry. The coursework is designed to ensure students gain a keen awareness of all things blockchain and crypto; provide students with the opportunity to construct a business model and an understanding of how to scale for high growth; and includes a fintech practicum that concludes with a business plan pitch competition where students present early-stage fintech-related business ideas to a panel of venture capitalists.