Babson Magazine

Fall 2018

Get to Know Blockchain

Perhaps most known for its connection to bitcoin, blockchain technology has the potential to impact business operations way beyond the implementation of digital currencies. Those already involved with blockchain claim the time to learn how is now.

Illustration by Patric Sandri
Illustration by Patric Sandri

For years, Havell Rodrigues, MBA’03, worked in the financial industry, first for a hedge fund and then a fintech startup. He became familiar with the back-office processes, such as settling trades, that slow down operations. Also a mentor for MassChallenge, the nonprofit accelerator and competition for early-stage entrepreneurs, Rodrigues was exposed to tech trends. So when he learned about blockchain technology, and how one of its benefits is automating and securing transactions, he was intrigued.

Blockchain technology, as experts will explain, is a digital, shared, distributed ledger—a means for recording and tracking various kinds of transactions, not just financial ones—that offers security due to its structure. The information in a blockchain is organized in “blocks” that are interconnected using complex math, which results in it being extremely difficult for someone to change the recorded data. No one party controls the information, and certain transactions can be programmed to trigger automatically, removing the need for intermediaries and reducing or eliminating paperwork. Perhaps the most publicized application of blockchain technology is the buying and selling of cryptocurrency. But the technology can be used for secure tracking of myriad data, including supply chains, health and insurance records, and much, much more.

After learning about blockchain, Rodrigues, who had been thinking about becoming an angel investor, began discussing its opportunities with two former co-workers from his days at the fintech venture. In 2016, the colleagues decided to found Adjoint, which offers smart contract language, distributed ledger, and software development kits that can be used by enterprises to create applications built on blockchain. Rodrigues isn’t the only Babson graduate staking a claim in blockchain. Numerous other entrepreneurial thinkers are moving on opportunities related to this up-and-coming technology. Babson professors also are tracking blockchain, and Steven Gordon, professor of information systems, began offering courses addressing the technology last spring.

But for many, blockchain technology is still something of a mystery—and that needs to change, say those already involved. The time is now for businesses to learn about blockchain’s potential and applications, and how it may relate to their operations. At the same time, they advise common sense. “I have to remember what I learned at Babson, and I remind myself every day—you have to solve problems,” says Rodrigues. “You don’t use blockchain because it’s cool. You need to solve a problem and make sure it’s meaningful.”

The Benefits

John Hargrave, MBA’04, is CEO of Media Shower, a blockchain consulting and strategy firm and publisher of the online Bitcoin Market Journal. Hargrave’s interest in blockchain began in 2013 when he invested in the cryptocurrency bitcoin. “At the time, I thought it was one of the weirdest, most unusual things I’ve done,” he says. “My wife said, ‘What are you doing?’ But I had read about it and got really interested and watched the price go from literally nothing to a few cents to a few dollars to about $125 when I bought it. It’s about $6,000 now. It fluctuates, but after you’ve done it for a few years, you realize it’s here to stay.”

Hargrave fundamentally believes in blockchain, the technology that underlies the bitcoin cryptocurrency. As a blockchain consultant, he advises companies to learn about the technology, even if they aren’t sure whether it will impact their business. “This applies to any industry,” says Hargrave, who also is writing Blockchain for Everyone, which will be published next year by Simon & Schuster. “You need an expert who can be the evangelist in your organization—someone who can be prototyping new technologies and be the entrepreneurial test bed. If you wait to educate the organization until you know what blockchain is all about, by the time it all plays out, it’s too late.”

Paul Quigley, MBA’02, is managing director of Cornerstone Healthcare Consulting, a national health-care technology consultancy. He also is CEO of its affiliate company, Bloclab Enterprises, which focuses on the strategic use of blockchain across the health-care and life sciences industries. Blockchain is a cryptographically secure way to transmit and store data in a transparent and immutable way. As such, it has the potential to be used by many industries. When explaining the technology, Quigley turns to the metaphor of a railroad. “You have a railbed, and the rails and the ties that make the railbed stay in place and conform to specific standards,” he says. “If you have a train and you want it to run on that railbed, it has to be compliant—a certain width, for example—or it won’t run on the tracks. Blockchain is that compliant railbed, and on that you can create highly specialized applications—trains—that run on the railbed.” An example of a specialized train, he notes, would be the cryptocurrency bitcoin.

One of the main benefits of blockchain is removing certain intermediaries from transactions, says professor Gordon. “In business, we teach that disintermediation is usually good,” he says. “Typically, intermediaries slow things down, they add cost, and they have their own agendas, which may be different from yours.”

Blockchain brings trust to operations, adds Quigley. The technology makes it extremely difficult to change information once it’s entered in the chain, and all transactions are recorded and updates can be viewed by all participants. These factors alone build trust, he notes, but, additionally, by sharing secure data across a distributed computer network instead of a centralized one, blockchain reduces the risk of data breaches. “Frequent data breaches have eroded consumer trust with central organizations,” Quigley says. “People don’t trust these entities to protect their information. There are going to be a lot of experiments with blockchain, and some will fail. But we’ll learn something every single time and will continue to advance the technology.”

Havell Rodrigues, MBA’03

Photo: Pat Piasecki
Havell Rodrigues, MBA’03, CEO and co-founder of Adjoint

Sooner Rather than Later

Certain industries will potentially be affected by blockchain before others, notes Hargrave. He cites financial services, even beyond cryptocurrencies, as an example. Take, for instance, the difficulty of dealing with banks for tasks like sending and receiving money, especially overseas. That’s the kind of challenge that’s driving adoption, says Hargrave, because blockchain removes banks from the process.

Gordon adds that banks themselves are exploring the technology. “When banks settle transactions among themselves, they have to go through clearing agencies,” he says, “which slows things down by three or four days. And there’s the cost of maintaining that agency.” Blockchain can automate and expedite these transactions.

Finance is a target market for Adjoint, notes Rodrigues. For example, one of its customers is a Fortune 500 company with subsidiaries operating in more than 70 countries, so it deals with multiple currencies. “One problem was visibility as to where cash is, but also having an easy and secure way to move cash intracompany,” says Rodrigues. “They came to us looking for a solution, and we built it out for them. Now we’re deploying that product, Smart Treasury, to other companies. Large companies looking to use blockchain to improve margins by reducing costs in existing operations—such as by automating processes, instead of manually recording data for transactions and spending time reconciling—would be interested in our product.”

Lilya Tessler ’05, MS’06, recently joined the law firm Sidley Austin as a partner and New York head of fintech and blockchain in its Securities & Derivatives Enforcement and Regulatory group. She has been involved with blockchain technology for several years. “I was working to build a fintech clientele, and a big blockchain token exchange company was one of my clients. It asked us to apply securities laws to blockchain token sales,” she says. “Since then, cryptocurrencies have proliferated, and the industry has become more regulated. In the U.S., the issuance of tokens, which use blockchain technology, may be viewed as securities issuances.”

Tessler works with financial services firms, blockchain technology companies, firms offering cryptocurrencies, and digital asset trading platforms. She helps her clients with a range of services, from understanding the regulatory implementation of their technology to the sales and distribution of tokens on their networks. “I’ve advised on token issuances, which are capital markets and fundraising activities engaged by blockchain companies. I advise clients from a securities law perspective,” she says.

Tessler also educates clients about policy and guides them through regulations. “There have been a lot of headlines that blockchain is a fad, but I think it’s becoming more mainstream. It’s not going away,” Tessler says. “For financial services that are trading in blockchain digital assets, they need to understand the technology and cryptocurrencies. But even if they’re not trading in them, people should be educated about them, including the regulatory requirements. Know what those are and how they apply to your business.”

Own Your Identity

Another industry currently examining how blockchain may improve operations is health care. In addition to streamlining payments, the technology is being considered for medical records, says Quigley of Bloclab Enterprises. He notes it could simplify and secure the tracking of patient information, creating one patient-controlled data set that can be accessed by many—doctors, hospitals, dentists, for example—with the appropriate permission. “It’s consent-based data management,” Quigley says. “Consider when you enter a practice, there are all these arduous forms that you repeatedly fill out. They include family history, past medical history, medications that you take, and allergies. If you put that information into a ledger and secure it with a cryptographic hash placed on the blockchain, it’s locked down. No one can change it without the appropriate permission.”

Paul Quigley, MBA’02

Photo: Tom Kates
Paul Quigley, MBA’02, managing director of Cornerstone Healthcare Consulting and CEO of its affiliate company, Bloclab Enterprises

While he’s a strong proponent of blockchain technology, Quigley isn’t completely on board with using it for all health records. Some technical and practical problems exist, such as certain information—for example, a CT scan—being too big to store efficiently. “A CT scan can be 100 megabytes in size. It’s totally impractical to store that on the blockchain,” Quigley says. “But there’s data in the image that can be compressed and put on the blockchain—things like name, age, date of birth, allergies, medical history. There’s a compelling argument for blockchain in this case, and some health systems are trying it. But it’s important when developing the business case to ask what needs to be ‘on chain.’”

Identity management is a key focus for Quigley. He consults about blockchain with companies in such industries as life sciences, pharmaceuticals, and biotechnology, all of which typically conduct patient-based research. “The idea is that the consumer owns their information, like their genome, and can rent it to a researcher,” he says. “Right now, identity management is very fragmented and not only in health care. There are a lot of companies mining your information. Credit cards, stores with their loyalty programs, all the programs you use on your cell phone and on the internet—they’re all creating profiles for behavioral economics. Blockchain will give the consumer a mechanism to control how their information is used and not used.”

Hargrave also believes strongly in the concept of identity management. “Wouldn’t it be great if you could keep all of your medical records on the blockchain and only share those pieces of information with your permission?” he says. “I do a whole rap on Equifax, the credit-reporting agency that took all our information without our knowledge and then lost it to hackers. We should be in charge of our personal data. No company should be able to take and harvest our data without our consent. It’s a fundamental human right.”

Improved Tracking

The use of blockchain technology in supply-chain management also is being developed. “I think everybody sees the value of blockchain in this application because of the disintermediation and transparency and ability to track products along the way,” says Gordon.

Quigley agrees and thinks blockchain is beginning to play a critical role in supply-chain management, helping to track and confirm orders as well as manage such details as product integrity, availability, and pricing. “If you use a distributor, you don’t have transparency, or what is called line of sight. If I’m a company with a complex supply chain, I don’t like that. I want a clear line of sight to my suppliers, and I want to know that the information is accurate,” Quigley says. “It goes back to data being immutable, or unchangeable, and transparent, which results in trust.”

Perhaps one of the most publicized applications is in the food industry, with Walmart and reportedly 10 other large companies working together to create a blockchain that tracks their food supply chains. IBM is providing the technology and calls the initiative the IBM Food Trust. An important goal—in addition to improved transparency, standards, and record keeping—is better handling of food recalls. Because blockchain would capture data along all points of the supply chain, it would allow for quick identification and tracking of problems. Faster recalls of unsafe foods should benefit not only consumers but companies, too, because they can avoid the often huge losses associated with these recalls.

“What happens now is someone says the romaine lettuce is tainted, and suddenly everyone across all of the Western part of the United States is throwing out romaine lettuce,” says Rachel Greenberger, MBA’11, adjunct lecturer and director of Food Sol at Babson. “Blockchain lets a company immediately find out which farm or pool of romaine lettuce in a specific area is contaminated and recall that product, leaving everybody else alone.”

Greenberger believes the potential for blockchain to change the way the food industry functions—improving methods for proof of provenance, increasing safety and efficiency, reducing waste—is enormous. Although she says it’s still too early to know exactly how blockchain will play out, Greenberger thinks it will be adopted quickly if there is money to be made. “Right now, there are still a lot of fax machines and paper and human error. We have one of the safest food supply chains in the world, and yet there are a lot of gaps in its management,” she says. “If a giant company, like Walmart, for example, adopts blockchain, then because of its size and command over the industry, many smaller players will have to get on the Walmart chain as well.”

Entrepreneurs in the food industry should be learning about blockchain and watching its evolution, she continues. “If this gets adopted by major players in the food industry who call the shots on how everything else comes down, then if you want to sell to them, you will have to be thinking about blockchain as part of the way that you move and share data,” Greenberger says. “It’s early. There are not enough cases in the food industry yet. But I tell entrepreneurs to keep on this. It could change everything. You need to know it.”

Points to Consider

Financial services, health care, and food are just a few of the industries that soon may be affected by blockchain, as are insurance and reinsurance, media and entertainment, and real estate. So how does a business determine whether blockchain might potentially impact its operations? Quigley suggests asking the following questions: Is your business part of a data intensive ecosystem? Does it operate in a low-trust environment? Does it require multiple partners or trading partners to get goods and services to market? If the answers are yes, says Quigley, then those businesses should explore the benefits that blockchain could provide and, potentially, start experimenting with the technology.

Hargrave says companies that think blockchain may be in their future should consider hiring developer talent, so they can start experimenting with the technology. Hargrave also suggests networking with others in the blockchain space and attending one of the blockchain events he frequently hosts at Babson’s campus in Boston. “Find a consortium or industry group,” says Hargrave. “Go to conferences and industry events and talk with people.”

Companies also need to decide if they want to use a public or permissioned blockchain. As its name suggests, a public blockchain allows anybody to participate, says Gordon. He cites the example of LBRY, a digital library of artistic content—videos, music, speeches, and more—which was developed using the same blockchain technology as bitcoin. “Artists can sell directly to users. LBRY doesn’t take a cut,” he says. “One of the advantages from their perspective is it can’t be censored. People can put whatever they want on there. LBRY doesn’t control what goes on.”

In permissioned, or private, blockchain, access to the blockchain is controlled by one or more parties, notes Gordon. “You don’t allow people to participate unless you know who they are,” he says. “There are advantages to that for businesses that deal with regulations and want to preserve those conditions.”

Lilya Tessler ’05, MS’06

Photo: Chona Kasinger
Lilya Tessler ’05, MS’06, partner and New York head of fintech and blockchain in the Securities & Derivatives Enforcement and Regulatory group at law firm Sidley Austin

Rodrigues of Adjoint says his clients prefer this approach, adding that permissioned blockchains still provide a single source of truth of transactions, distributed recording, and strong immutability. “But it’s private,” he says. He sees consortiums, such as the IBM Food Trust, and large companies with various divisions or subsidiaries as potential early adopters of permissioned blockchain.

The Road Ahead

Much still needs to be developed before blockchain will become mainstream, note participants. The infrastructure needed to make the bitcoin blockchain work requires a tremendous amount of energy, says Gordon, as do those of other blockchains that work on the same principles. Interoperability across different blockchains needs to be developed as well, as does better scalability, or the number of transactions that can be processed per second, especially for public blockchains. More tools for developing applications also are needed. All of this takes time, says Gordon. “The technology is still in its infancy. Technical things need to play out so we can see if they work right,” he says. “It takes a while for any innovation to penetrate.”

Gordon sees blockchain becoming more mainstream in five years. Rodrigues thinks it may happen a little sooner, perhaps in less than three to five years. “I’m an optimist,” he says, but he also has seen market research predicting enormous growth for blockchain. “Companies definitely should start looking at it. If you’re a large enterprise, you will soon see your business model being disrupted. You will be left behind by not taking advantage of this technology.”

From an entrepreneurial perspective, Gordon believes the time is now to become involved. “Our students are very interested. Blockchain is part of the world, so it is something they need to know about,” he says. “I think the next unicorn, or maybe the next few unicorns, are going to come from blockchain applications.”

Tessler of Sidley Austin also sees great opportunities for entrepreneurs interested in blockchain. “There are a lot of emerging companies developing blockchain solutions, and there is not enough talent in this space,” she says. “These companies are raising substantial funds from venture capital and through token sales. I’m seeing companies building out teams with a big base of funds to support them.”

Hargrave agrees, saying the entrepreneurial opportunities are “limitless.” “I am constantly having people come up to me and saying, ‘I have an idea’—and I think, that’s a perfect idea. For example, someone suggested to me an app to track all the plutonium in the world so that we could see ownership of it, and I thought, that’s the perfect application for blockchain,” says Hargrave. “I hear them every day.”