Industry 4.0 describes the ways by which big data collection and analysis, machine-to-machine communication, and artificial intelligence are making businesses “smarter” across all points of their value chains. Within this framework, industries such as banking, insurance, and energy are increasingly exploring the potential of the blockchain. As a distributed, digital transaction technology, blockchain offers secure and seamless automation – a cost- and time-saving alternative to traditional business processes.
Germany coined the Industry 4.0 term, so it is perhaps unsurprising that many German and EU businesses have recognized the value of using blockchain for more than just cryptocurrency. For example, in a joint pilot project, the German regional bank LBBW and the automotive leader Daimler executed a debt certificate based on blockchain to reduce administrative costs and duplication of work. Fifteen European insurers and reinsurers, including Aegon, Allianz, Munich Re, Swiss Re, and Zurich, have joined forces under the Blockchain Insurance Industry Initiative (B3i) for similar reasons. Many European energy utilities – like Enel, RWE, and Vattenfall – are backing the Enerchain project to bring peer-to-peer trading to the wholesale energy market.
Process scalability, complexity, and testing are still hurdles in many application cases. I know of one German insurer that is testing a blockchain-driven redesign of its administrative processes across its group of companies. Its cost potential is in cutting out interfaces and departments that were double and triple checking the accuracy of contracts, regulations, and transactions. In the energy sector, traders are hoping that blockchain technology can reduce transaction complexity and, thereby, reduce the costs of energy settlement, the process of reconciling the energy purchased with the energy sold.
Regulation is also a factor in blockchain’s potential. In 2016, my colleague Jens Weinmann and I worked with representatives of the German Energy Agency (DENA) to survey decision makers in the sector. As we noted in the resulting report, stakeholders understand that blockchain-driven proposals must offer a compelling alternative to already technologically advanced, trusted, and well-regulated solutions for managing the energy market. Considerable debate remains on how much (or how little) old regulations should shape the Energiewende, Germany’s energy transformation. Not too long ago, for example, I was at a dinner event attended by consultants, startup founders, and members of government ministries. In a discussion on blockchain regulation, the ministers argued for more regulation. Startup leaders countered that, instead, the transparency of blockchain in their solutions might help to reduce regulation.