According to Gartner, hyperautomation is the number 1 technology trend in 2020. Everything that can be automated will be automated. Multiple tools and techniques including robotic process automation (RPA) and artificial intelligence (AI) will be combined to replace human workers. This will make business processes way more efficient and less error-prone than today. Although in many areas business processes are already highly optimized there is still a lot potential for improvement.
But what type of business processes are we talking about? When diving deeper into that topic one will quickly realize that almost all business processes that are considered to be automated when talking about hyperautomation are internal processes.
Why is that? Isn’t there a lot more potential to automate processes across multiple independent companies?
We call these intercompany processes* and we think that by utilizing blockchain in combination with other techniques it will be possible to fully automate them in the future.
But what exactly is the role of blockchain in the context of hyperautomation?
*By our definition intercompany processes are processes where multiple independent companies are involved
Existing problems and the need for an intercompany transaction network (ICTN)
Business processes across companies are characterized by the fact that numerous process steps require the integration of different IT systems and the involvement of different roles. Today, these processes run via several communication media such as telephone, e-mail, Internet and paper-based correspondence. Due to a lack of system integration they are by definition costly, error-prone and usually lack consistent monitoring. Media and system discontinuities also mean that information from different systems has to be consolidated again and again at great expense.
Typical characteristics of intercompany processes:
- inconsistent data
- difficult to monitor
- high consolidation effort
Today there doesn’t exist a solution to that problem which allows various companies to integrate their systems in a convenient and efficient way to get away from the unintended characteristics mentioned above.
If we think about automating intercompany processes, the following topics come to our minds and need to be tackled:
Missing standards and/or high integration costs
- Integration needs to be done for each business partner (!)
- Integration often not worth doing for small and medium-sized enterprises (SMEs) due to economical reasons
Lack of trust
- Business partners are at the same time often competitors and companies usually don’t want to share sensitive data with them
Missing data consistency
- There is no instrument to ensure data consistency in a shared business process where multiple companies are involved
Confidential and secure message system
- Communication and contract data should only be shared with involved parties
A solution that allows every business partner involved in a shared business process, e.g. in a supply chain, to get a realtime view for the current state of the process is desired. And wouldn’t it be great if it were possible to automate accounting related tasks which would allow to perform automated audits?
The solution to these questions which combines multiple techniques including blockchain is what we call an intercompany transaction network (ICTN).
We think that by leveraging blockchain technology in a common framework it will be possible to fully automate intercompany business processes without creating new monopolies and data silos.
The components required to enable an ICTN will be discussed later. First we want to recap past approaches that aimed to solve this problem by making use of blockchain technology.
Past approaches & consortium blockchain solutions
If we take a closer look at past pilot projects where a blockchain was involved many of these tried to replace and extend existing business process implementations by coding a similar logic in smart contracts.
The promise was that business processes could now take place across companies in realtime without media disruption and thus much more efficiently while ensuring data consistency. Since sensitive data is involved in the processes, these should not be publicly visible and for this reason often solutions like Quorum (modified Ethereum) or Hyperledger Fabric were chosen as the solution as these provide some important privacy features.
However, although most of these promises have been verified in pilot projects to some extent there are several reasons why it is difficult and risky to replace existing solutions with such a blockchain solution.
A blockchain network based on Quorum, Hyperleger Fabric or any similar solution always requires a consortium setup which is hard to establish and to maintain as the initial consortium and joining members all need to agree upon the governance model. This is typically a lengthy process that requires at least following questions to be answered:
- Who controls the network?
- What are the rules for new participants to join?
- How are critical errors in smart contracts dealt with?
- How will protocol updates be governed?
Besides the difficulty to establish one or more consortium chains with different partners there are other aspects to be considered:
- Is there enough incentive for other businesses to join the network? (we need network effects!)
- Is the technology mature enough to replace existing systems?
- Isn’t this just another data silo that is being built?
I guess none of the companies CIOs would be willing to take these risks and try to replace existing systems with such a solution as long as it isn’t battle tested. And here we haven’t even talked about performance, IT security policies and general compliance topics which must not be forgotten.
We need a solution that can tackle the existing problems without having to reinvent the wheel and this is where ICTN comes into place.
Idea & key components of ICTNs
The idea behind an ICTN is to combine multiple different techniques — including blockchain — in a common framework. An ICTN will allow companies to establish fully automated, secure and private intercompany business processes without media disruption while ensuring data consistency across all involved parties.
It is very important to mention that an ICTN can be integrated in any system landscape, no matter how heterogenous the ERP systems of the involved companies are. While the sensitive business data stays in the existing IT systems we make use of cryptographic methods to prove to all involved parties that certain steps in an intercompany business process have been completed correctly.
Whenever in the intercompany process an agreement between one or multiple parties takes place, zero-knowledge proofs are used to ensure that previously defined business rules are met. Thus every party involved in the overall process can be sure that the state of the process is consistent and up to date.
This is the role of the blockchain in the context of hyperautomation as we see it today.
In an ICTN the blockchain is the immutable state machine where zero-knowledge proofs are stored irreversible and can always be verified by all parties involved in an intercompany business process.
Another major advantage is that auditors could also be integrated in an ICTN which means that it would be possible to fully automate audits.
We identified following key components which are necessary to make an ICTN possible:
Secure and Private Communication
To enable an intercompany transaction network the companies involved in the processes need a communication protocol that allows them to send and receive messages in a secure and private manner. Although the protocol is used by all participants, messages required for certain steps in the process should stay confidential between involved parties and not be visible to other players.
The zero-knowledge component is required to create and verify cryptographic proofs which contain transaction data for a certain step in a business process. The cryptographic proofs ensure the previously defined business rules are met and they are stored on the immutable state machine (blockchain). The proofs can be verified by all parties involved in the business process and this allows them to get a consistent view of the overall process while ensuring that confidential data between certain business partners stays confidential.
Zero-knowledge cryptography can also enable confidential value transfer between multiple parties. This way payments or transfers of tokenized business assets could be performed confidential on a public blockchain.
Immutable state machine / Blockchain
The role of the blockchain in an intercompany transaction network is to provide an always accessible and immutable state of records of business relevant proofs.
Company identity registry
The company identity registry is another important piece in an ICTN because there needs to be a way to verify that a business partner really is who it claims to be. This could for example be a global registry which stores DIDs of verified companies. If you aren’t familiar with DIDs we encourage you to read about the decentralized identity standard.
Another optional component we identified is a so called “Gas Station Network”. Since a public blockchain is considered to be used the companies would need to pay for the transaction fees to store the proofs on the blockchain. We expect that many companies don’t want to hold a cryptocurrency like ETH to cover the fees. This is why relayers might be necessary which take the transactions of the companies and publish them on behalf of the companies.
Does this idea sound familiar to you? Then you probably heard or read about the Baseline Protocol which has been hyped and advertised a lot in the recent weeks and months.
It was announced back in March 2020 by EY and a first Proof of Concept was developed in cooperation with Microsoft and ConsenSys.
“Blockchains will do for networks of enterprises and business ecosystems what ERP did for the single company.” (Paul Brody, EY)
If this statement by EY is correct, we cannot even begin to imagine how big this market will be.
Although there are still some open questions and challenges that need to be tackled we think that Baseline Protocol deserves to be hyped. We think so because we identified similar key components for our definition of an ICTN and it is an approach that can be integrated in the existing system landscape and hopefully will be seen very soon in a production environment.
The role of 51nodes
We are always trying to be at the forefront of the development that takes place in the crypto space and we think that the Baseline Protocol is a promising approach that can bring our vision of an intercompany transaction network into reality. Of course we will keep our eyes always open and look for other solutions.
If you are interested in learning more about this idea or you want to integrate and verify a solution like Baseline Protocol we would be pleased to assist you in your project!
51nodes GmbH based in Stuttgart is a provider of Crypto Economy solutions.
51nodes supports companies and other organizations in realizing their blockchain projects. 51nodes offers technical consulting and implementation with a focus on smart contracts, decentralized apps (dApps), integration of blockchain with industry applications, and tokenization of assets.