Should I Care About The Blockchain? Part 1

This is a 2-part series on blockchain technology. In part 1, we will explore what blockchain technology is and provide a simplified explanation of how it works. In part 2, we will identify when to expect enterprise blockchain adoption, and what you should be doing in order to prepare.

The internet, smartphones, cloud computing… blockchain? Three of these innovations have revolutionized the way consumers and companies interact, transact, and exchange information. If you have been paying attention to the news for the past year, you have likely heard the same industry-disrupting claims applied to blockchain technology.

Stories about the blockchain’s ability to revolutionize all aspects of life — both public and private– have been easy to come by these days. With Bitcoin reaching all-time highs, and blockchain based companies raising millions of dollars via Initial Coin Offerings (ICOs), interest from businesses, governments, and individuals has grown exponentially in the last year. This has left many scratching their head and asking themselves, “Should I care about the blockchain?”

Is it all hype, or does blockchain technology have the potential to completely change the way we think about the management and exchange of information around the world?

What is the Blockchain and How Does it Work?

For the majority of us, we equate blockchain technology with Bitcoin, and for good reason — blockchain technology was developed as the accounting backbone for the digital currency. Since Bitcoin, new blockchain platforms and have been developed which have added enhanced utility to the core functions of blockchain technology, including “programmable” (smart) contracts, increased speed/transaction capacity, and the ability to digitize physical assets into tokens which can be exchanged on the blockchain. With the amount of hype surrounding this technology, including its potential to “change the world”, and the inherent complexity of how it works, it is important to spend some time understanding what blockchain technology is and is not so that we can get a better understanding of what it could become in the near future.

Also known as distributed ledger technologies (DLT), blockchain technology is meant to provide an immutable and auditable record of all transactions that occur within the network. A system of computers, or “Nodes,” which participate in the network are all responsible for validating and maintaining the quality of the data stored within and written to the network. When functioning as expected, the blockchain allows for self-managing and validating systems that do not require the need for an intermediary to serve as the arbiter of “truth” in the network. Traditional data networks rely on a centralized intermediary (governmental institution, banks, even services like Google or Facebook) to validate and maintain the data stored on the network and serve data requests to users.

On a blockchain network, there are no intermediaries to serve as a single point of truth to maintain and validate data. This means that transactions which used to take days can now be executed faster (near instantaneous), cheaper, and with the same level (or even more) of security and confidence of data quality for the end user. Note: the term “transaction” is not used here purely in the financial sense (i.e. transfer of money). In terms of the blockchain, a transaction can be any exchange of data (reading from or writing to a database), sending information between parties, etc.

At a minimum, and for simplicity, let’s think of all blockchains as the following: a form of distributed ledger technology that is used to digitally record and facilitate the exchange of information between parties via a decentralized network of computers (nodes).

A ledger (or database) is used to record and store both static and dynamic information: financial transactions, inventory levels, ownership, personal information). Traditionally, the ledgers that maintain this information are managed by trusted 3rd parties (banks, governments, inventory management systems).  As consumers of this information, we trust that the parties which manage the information will maintain accurate records on our behalf (account balances, social security numbers, vehicle registration information) and provide us access to it when requested. We pay fees to these 3rd parties to ensure our access to and quality of the information stored (account fees, licensing fees, taxes). In this sense, the responsibility for maintaining these records is centralized to the institution that manages the ledger.

Image via NESAD

The distributed ledger removes the responsibility of maintaining accuracy of records from a central institution and instead spreads it to all the participants on the network. Each participant maintains a complete copy of the ledger, which is updated in real time. This means that the responsibility for ensuring data quality and processing data requests can be spread between the network participants – essentially moving “trust” from a single entity to the network as a whole.

The redistribution of trust from one to many raises a very important question, “How can I trust the information provided by a network of computers around the world, especially when I have no formal economic relationship with any of them?” In other words, “How are network participants incentivized to provide accurate information?”

Blockchains solve this problem by using a combination of economic incentives and computational-intensive cryptography to ensure that information is protected from unauthorized access, and that the data contained in the chain remains accurate. The process by which the network participants validate transactions and ensure that the previous record of transactions stored in the chain has not been changed is known as “consensus.” For Bitcoin, you may have heard of this called “mining,” which has grown to be an extremely profitable industry for both the miners and for the manufacturers of the graphical processor units (GPUs) which are used for it.

Mining is a means by which network participants contribute computing power in order to perform the mathematical proofs which validate new transactions and ensure the accuracy of data stored on the blockchain. Miners are rewarded for their effort in maintaining the chain in the form of Bitcoin. Other blockchain protocols use different methods of consensus which do not require mining, but rather rely on other economic incentives to ensure accuracy of data. You can learn more about different consensus protocols here. Due to the cryptographic methods utilized in encoding the data, network validators can ensure the accuracy of the transactions without actually knowing the details of the transaction, ensuring data privacy.

As transactions are validated, the record of it is added as another data block in the chain. All blocks reference back to each other. Because all network participants possess a complete version of the ledger, any attempt to modify the details contained within a previous block in the chain will be identified and rejected. The following image summarizes the relationship between blocks.

Image via FundSociety

Taken all together, the blockchain provides a perfect record of information which cannot be modified after the fact, and allows information to be validated without reliance on one single entity. It allows for data to be exchanged and validated faster, cheaper, and with more security than traditional centralized networks. For as much attention as blockchain technology has received in the media, the actual applications of it, and our interactions with it, will be relatively invisible. Blockchain protocols will be another piece in the arsenal of existing back-end network protocols, programming languages, and databases that power the modern internet and global IT infrastructure.

The potential efficiencies that the blockchain can offer have caught the eye of many individuals, organizations, and governments who are looking to develop the next generation of public and private digital services and utilities.

Who are the Players?

In addition to Bitcoin, some of the larger blockchains include Ethereum, Bitcoin Cash (this is not a typo — you can read about why there are two flavors of Bitcoin here), Ripple, IOTA, NEM, and NEO (amongst a growing list of others).

Each adds in some unique functionality which improves upon the original vision of Bitcoin. Ethereum was the first blockchain to bring smart contracts — the ability to create programable, self-executing contracts that can facilitate the automatic exchange of assets between parties upon execution of the agreed upon terms. Other blockchain technologies, hope to address the speed and scaling issues that plague other blockchains by using new methods of validation that require less computational “work” in order to verify the authenticity of transactions and maintain the ongoing ledger, or “chain”.

The space is growing rapidly, and there is no shortage of blockchain platforms in development. As the current protocols continue to be improved upon, and as new platforms emerge, it will be exciting to see how adoption of blockchain technology grows. Will certain protocols lend themselves better to certain types of tasks? Will there be new enhancements which allow for integration of different blockchain protocols? It is still too early to tell which (if any) blockchain protocol will emerge as the preferred standard for enterprise use, but I can assure you that there is an intense interest in this technology from individuals and organizations alike. The next 5 years will be instrumental in shaping the adoption and perception of blockchain technology around the world.

In part 2 of this blog post, we will explore when we can expect to see large-scale enterprise adoption of the blockchain, and provide some insight on what you should be doing now in order to prepare your organization for the future.

If you would like to learn more about blockchain technology, you can reach Sam Schieber at sschieber@wcapra.com.


Click & Mortar – About To Be at a Whole Foods Market Near You

August 24, 2017 – Today Amazon announced several initiatives it will begin to execute on when it closes on its deal to acquire Whole Foods Market this coming Monday. I blogged about this just two months ago and my vision closely matches the plans Jeff Wilke, CEO of Amazon Worldwide Consumer, outlined in a statement. The blue comments, in line with my original posting, are the plans announced today that will bring the physical and digital worlds closer together. In addition, there are plans to reduce prices immediately on “a selection of best-selling staples”.

With what seems like the click of the mouse, Amazon has made their entry into the physical retail store world with their planned acquisition of Whole Foods. The deal was announced in June and is closing in less than 3 months. This didn’t come as a big surprise to me, both companies have had their pressures. Whole Foods from investors similar to what we’ve seen in the Convenience/Petro retail vertical that has led to acquisitions. Amazon has had reported pressures on delivery costs impacting overall profitability, Whole Foods gives them 400+ new outlets for pick-up.

At the core of the Amazon / Whole Foods announcement is reinforcement of a belief I’ve long held and discussed with other retailers – the store is not dead and on-line retailing will not kill the store. “Whole Foods will continue to grow its team….as it opens new stores.” Sure, there are many examples of brick and mortar stores closing – I was at one just the other day (Eastern Mountain Sports) – but to me the core of the announcement is the continued transformation towards bringing the best of both worlds together. The so called “unified commerce or omnichannel challenge” is best seen when looking at the separate parts and can be best improved when each are brought together, not in a technical way, but more importantly in a way that will make the customer experience superb and I believe that is what Amazon, in particular, realizes and is seizing upon. John Mackey, Whole Foods co-founder who will remain CEO said, “We can’t wait to start showing customers what’s possible when Whole Foods Market and Amazon innovate together.”

For example, you can’t sell fresh any better way than with the colorful displays of produce or seeing daily delivered fish from ocean piers on a bed of ice. I saw this and more a few weeks back in Vancouver at the Granville Island Public Market; you almost couldn’t move around the ‘store’ it was so jam packed with people wanting the experience of seeing, touching, smelling, talking & listening – all that can only happen with an in-store experience.

Stores are also needed because there are flaws in the on-line delivery and return process. I had a gift ordered last week from Amazon in time to bring to someone over the weekend but found out once it was delivered that it was the wrong color. I began the return process only to find out that the replacement wouldn’t be here in time. Off to the store I went to have a gift in hand. With Amazon Lockers at Whole Foods stores customer will be able to complete returns during a visit to the store.

The deal will allow Amazon and Whole Foods many opportunities but none better than learning, refining, and executing on a great customer journey based on the experiences of the many personas that make up their shared customers. Added consumer insights is a clear outcome of the two coming together. Amazon’s Prime customer is similar to Whole Foods customer so the opportunity to grow both businesses from what makes customers tick within each “channel” will drive refining both customer experiences. Tech teams at both companies are beginning to integrate Amazon Prime into Whole Foods Point of Sale system. Whole Foods has a strong Private Label offering, Amazon learns more about that. Whole Foods private label products will be available through Amzon.com & through other Amazon services. Amazon has technology plays in motion such as with Amazon Go, and we can bet on more to follow – so they will have more places to test part of or full concepts. “The two companies will invent in additional areas over time, including in merchandising and logistics.”

Amazon clearly becomes a new brick/mortar competitor for those in the grocery and convenience store space. Retail information technology initiatives typically lag at many grocers and C-Stores are then often follow-ons. As Amazon plays out their new insights, one area grocers will need to step up their efforts is with their on-line order & pickup / delivery plans while C-Stores will need to get better positioned in this area. Amazon Lockers will be available at select Whole Foods locations.

Execution on available and innovative technologies, further retail consolidation, and turning data already in hand into actionable customer experience insights are among the contenders for the types of ‘clicks’ brick and mortar retailers will be taking to respond.

 

Ed Collupy, executive consultant at W. Capra Consulting Group can be reached at ecollupy@wcapra.com and be sure to visit www.capraplus.com for more retail technology and business insights. Collupy has IT leadership and business team experience directing and supporting retail systems for store operations, merchandising, fuel and accounting teams in the C-Store industry.

 


What Have We Done To Consumer Expectations?

Whatever you think of him, Steve Jobs was excellent at product development.  Consumer friendly, intuitive design was the at the core of every product he introduced.  He felt that the user should be able to effectively use a device or software without being told or shown how, and he did this with devices and apps the world had never seen before – the iPod, iTunes, iPhone, etc.  As further evidence of this end-user design focus, Apple was among the first to ship fairly complicated hardware without a lengthy user manual.

Players in the payments industry, in a rush to be the first to market, have overwhelmed consumers with new products and services.  In this haste, ensuring consumers understand how to effectively use this technology has become an afterthought.

Consumer Expectations

A focus on innovation coupled with intuitive design has become the norm for consumers.  They expect innovation, but they also expect things to “just work”.  In the best case, poor design can result in a tepid launch of a product and keep otherwise good ideas from reaching critical mass in the marketplace. At its worst, a poor user interface can discourage users from regular use of the product or service. Mobile applications serve as a primary example of this evolution in consumer behavior. According to TechCrunch, CompuWare conducted a study on app usage which found that approximately 90% of apps are used once and never again.  This abandonment is attributed not only to buggy design, but to difficulty in setup, registration, or use.

Consumer Payments Bombardment

Consumer payment innovations have been fraught with similar reception.  Historically, the complex network of ecosystem players was largely transparent to the consumer.  Consumers presented a physical credit card to a merchant who processed it.  The only players visible or relevant to the consumer was the card brand and the issuing bank, and even those were occasionally synonymous, as in the case of American Express and Discover.

Today the consumer is bombarded with brands that the players want them to know.  Below is a sample list of major payment “brands” or technologies that the average consumer has been exposed to the in past 5 years:

ApplePay PayPal EMV/Chip Cards Chase Pay
NFC Clover SamsungPay Venmo
Square Amazon Wallet Bitcoin SamsungPay
Visa Checkout Apple Wallet MasterPass Bill Pay

Some payment professionals can’t explain the differences among these systems.  The industry cannot expect technologies to achieve significant market share when the use case is not easily apparent to the average consumer.

Some Successes

A handful of payment innovations such as Venmo have managed to quickly reach market relevance by addressing a specific problem and wrapping it with features and functionality that make it fun and easy to use.  Venmo wrapped P2P ACH payments with social functions that allowed users to interact and transact with minimal friction.  It’s worth noting that they accepted a certain amount of risk in the product (failed ACH transactions), but gained critical mass quickly so as to mitigate that risk. An intuitive user experience and thoughtful design on the front end of a product/service should be viewed as being of equal importance as the technology that is powering the backend.

Finding Intuitive Design

First, let’s acknowledge that intuitive design is somewhat subjective.  Not all consumers are tech savvy, nor are all consumer at the same level of innovation engagement.  Many believe that existing systems aren’t broken.  They are not wrong.  Let’s not force these users down a path they do not want to go down.  A bridge between tried-and-true and innovation is needed.

However, there are many cases where we do have engaged consumers.  These early adopters should be guided down a well paved path.  When changing existing consumer behavior, the path must be clear, especially in the early stages of adoption.  EMV terminals that sound an awful alarm when the card has been left in 1.5 seconds too long is not the answer.  Cashiers who don’t know if their store accepts contactless payments make consumers have second thoughts about attempting to use it elsewhere.

In general, focus on the end user perspective.  Here are some things to keep in mind:

  • Provide a clear path to download apps or to a website. Graphic images with links work well.
  • Keep registration as frictionless as possible. Use Facebook/Google/Twitter integrations to speed up the process.  Only collect user information that is actually needed.
  • Test, test, test before deploying code. Do this across multiple platforms, browsers, and O/S’s.  Users will not tolerate buggy.
  • Consider quick, simple, tutorials when a user is on a site or uses and app for the first time.
  • Point-of-Sale (retail) signage/prompts should be clean and clear. Staff must be trained.  A handwritten “no chip – swipe” sign stuck in the EMV slot is better than nothing, but upgrading terminals to process chips cards, as most merchants now do, is far better.

By ensuring that payments innovation isn’t driving more confusion for the consumer, the industry will ultimately win through adoption.  Recent history has provided many examples of what not to do.  Let’s learn from them and instead put consumers at the forefront of intuitive design.

For further discussion, contact Nick at nfredrick@wcapra.com.