Blockchain as a Megatrend

Blockchain technology was originally invented as the infrastructure for digital cryptocurrency like Bitcoin, whose soaring prices led to massive hype around blockchain. More recently the technology has also been applied for unique “Non-Fungible Tokens” (NFTs) that can represent the ownership over everything digital, for example a piece of art or music.

When it comes to legal or business transactions between independent individuals or organizations, humans have always relied on trusted third parties such as banks, governments, or clearing houses to validate transactions. But with blockchain as a decentralized and secure digital ledger, the way humans collaborate is getting restructured.

Blockchain enables participants to form a peer-to-peer network of independent organizations and individuals. Each of these participants may verify transactions as well as hold a copy of the transaction record without the need for a central controlling party. Cryptography functions ensure that information is shared in an immutable and authenticated way equally between all members of the network.

As an underlying technology for legal and business processes, blockchain has the potential to cut out intermediaries – and revolutionize the way humans do business with each other. Any industry that relies on complex cross-organizational processes could benefit from blockchain – and so could public sector and governmental institutions, even on an international level.

Benjamin Stoeckhert, business developer for Blockchain at SAP, says, “Streamlining public sector processes with blockchain can help battle or prevent fraud and corruption, for example, by providing a tamper-proof land register in countries with corruption issues.” Public procurement is another area of application for blockchain, as well as tracking donations and public funds.

For enterprises, the focus during the last decades was on optimizing internal business processes by making them paperless and automating them. Blockchain is a very powerful tool to extend this process optimization to cross-organizational processes and open ecosystems.

SAP and Blockchain

Since it first came up in 2009, blockchain has run the full Gartner Hype Cycle for emerging technologies. SAP was among the first companies to transform the potential of blockchain into solid products and solutions.

“Expectations were extremely high,” Stoeckhert explains. “The appeal of this vision – a single source of truth for a number of equal partners in a network – was so strong that many jumped on the blockchain bandwagon without fully grasping the technology behind it.”

Many assumptions about blockchain have been put into perspective since. Around 2018, the so-called “blockchain winter,” a general disillusionment with the technology, set in.

“However, accelerated by maturing blockchain technologies as well as related standards and ecosystems, a second wave of interest and adoption is rising in the cryptocurrency and enterprise space,” Stoeckhert says

“Supply chain transparency is the typical application for most of the existing SAP solutions. The blockchain-based material traceability option for SAP Logistics Business Network can provide an end-to-end picture of the supply chain provenance. It enables customers in industries such as foods, pharmaceuticals or chemicals to analyze their products’ genealogies up and down stream,” he adds.

“Consumers, for example, want to make sure their tuna has been caught in a sustainable way that met fair trade standards,” Stoeckhert explains. “But labeling fraud is actually a big problem in the seafood market.” SAP has been working with Bumblebee Foods, the biggest seafood provider in the United States, on an audit trail that can be called up by QR code.

SAP.iO venture GreenToken by SAP – a 2021 finalist for the Hasso Plattner Founders’ Award – is a recent innovative product focused on enhancing the traceability of raw materials products across the entire supply chain through a cloud platform supported by blockchain technology. GreenToken is running multiple pilot projects with companies in the chemicals and palm oil industry. One such pilot is with Eastman Chemical, where GreenToken is being used to provide auditable proof that Eastman’s products have been made with recycled plastic, boosting a circular economy and helping with ISCC Plus compliance. Another pilot is run by GreenToken with the palm oil supply chain in Indonesia, tracking deforestation-free palm oil from mills to one of the largest consumer product companies.

Outlook: Five Areas of Blockchain Maturity

With complex technology such as blockchain, accessibility is a constant topic. One way to lower the bar to entry could be the integration of blockchain into no-code business process management tools. Extending these tools with blockchain technology means enabling citizen developers to set up, execute, and monitor secure, cross-company processes while cutting down on IT involvement.

Further, an integration of blockchain with business process intelligence would allow users to turn their cross-company process data into insights and, ultimately, translate it into actions that help drive digital automation. “This is an area we are currently investigating within SAP Innovation Center Network,” Stoeckhert says. Security-wise, the adoption of those new business capabilities triggers several challenges both on the protection of cross-company process data and insights. In collaboration with SAP Security Research, the blockchain team at SAP Innovation Center Network explores privacy-enhancing technologies that serve as protection for shared data in a distributed ledger while enabling insights evaluation.

While today’s productive enterprise blockchain implementations are based on closed consortium blockchains, SAP Innovation Center Network is evaluating how the unique capabilities of public blockchains can be applied to enterprise use cases, such as for embedded finance on blockchain.

Another big step forward will be the addition of self-sovereign identities. “Blockchain still has the reputation of being a kind of digital wild west, hard-to-control area,” Stoeckhert says. The ability to unequivocally determine the identity of individuals or organizations will open up the next level of trust between participants, even in public blockchain networks.

“A further topic that is still in its early stages but highly relevant is the Metaverse. It consists of online spaces and virtual worlds that use technologies such as computer graphics and augmented and virtual reality to allow people to interact in a more immersive way than ever before on the Internet,” Stoeckhert adds. “It is envisioned that a decentralized digital economy consisting of multiple platforms will arise based on the Metaverse. Blockchain is evolving into the trust layer to represent and transfer ownership of value within the Metaverse.”

The megatrend of blockchain remains unbroken: experts expect total spending on blockchain solutions across the globe to reach US$6.6 billion in 2021. IDC forecasts a 50% rise in global blockchain investments by 2024, totaling nearly $19 billion.

Expert Questions

Could blockchain replace the Internet?

While it might replace central Internet-based business models, blockchain is far more likely to serve as an additional layer to the Internet than to actually replace it. The Internet has always been about sharing information, and blockchain will add a layer of verification of that information to create trust without the need for a middleman. Thus, blockchain and the Internet complement each other, where blockchain utilizes the Internet as an enabler.

Is blockchain a threat to the financial service sector as we know it?

On the one hand, blockchain can bring new business opportunities to banks and financial services providers. We currently see MasterCard extending its credit cards with a lot of cryptocurrency features. On the other hand, we really see decentralized finance – an umbrella term for financial services offered via decentralized ledger and therefore without the need for a central controlling party like a bank – on the rise. While this is still very early and lacks regulation, it could develop into a major threat to banking business as we know it, and banks and financial services would do well not to ignore it.

Will quantum computing render blockchain cryptography insecure?

Blockchain technology relies on modern cryptography schemes, which are threatened by quantum computers. Unless blockchain adopts new schemes, so-called post-quantum or quantum-strong cryptography, it will be vulnerable to attacks, for instance impersonating people and performing unauthorized transactions. In anticipation of quantum computers, the blockchain team at SAP Innovation Center Network has already started prototyping quantum-strong blockchain using new cryptography. Moreover, it is interesting to know that quantum computing is expected to not only effect blockchain technology, but the security of the whole IT world – for example, every password, WiFi connection, and online banking application that depends on cryptography algorithms.