Executive interview: Unleashing blockchain’s potential

Blockchain observations

What are your observations about blockchain adoption in Australia? You mentioned that it fell out of the media cycle, but is it more a case of companies having a misconception about what the technology is good for? For example, there can be things that can be done without the use of blockchain but blockchain often gets brought in, just because it's something cool.

Feeney: That’s a good point and part of the problem in Australia is there’s a big educational gap in blockchain technology. You’re exactly right that there are a lot of people who think of blockchain technology sort of as a silver bullet. But anyone who understands the technology knows that’s not what it is.

What blockchain does extremely well is to create technological innovations beyond what’s previously possible with other technologies when it comes to trust and decentralisation – basically creating digital trust between different entities. And you’re exactly right – there are plenty of solutions or IT systems that can be built without blockchain, so there’s definitely a need to educate organisations in Australia on what blockchain is useful or not useful for.

We’re thinking in terms of decades, not in months or years and I think in the next decade, organisations across all industries are going to need to integrate or use – whether directly or indirectly – blockchain technology in some shape or form

At Labrys, we help customers identify where blockchain technology can be applied in their business. But there’s further room for other startups and organisations around us that are solely specialised in blockchain education in the Australian market.

Could you provide an example of a company that has approached Labrys with an idea to use blockchain for something that doesn’t really make sense and you’ve had to steer them to the right track?

Feeney: There’s a common misconception that blockchain technology is more secure than traditional security technologies. That comes from this sense that blockchain is an immutable technology, which means data on the blockchain cannot be modified.

We get inquiries from people thinking that blockchain is good for locking up data in a vault and making it super secure so that hackers can’t access it. That’s not generally the case because blockchain achieves immutability by making information publicly available as far and as wide as possible, which is not the objective that those projects are trying to achieve. In most cases, they are much better off using a central system with traditional security measures. Blockchain is not good for locking up or hiding financial or health data, but it is an excellent use case if you want the data to be immutable and not be modified.

What are the blockchain projects that tend to do well? Many of them appear to be related to supply chain and financial services, where blockchain is used to gain supply chain visibility and facilitate financial transactions, respectively.

Feeney: You’re absolutely right that the bulk of the work is in the financial space, and if you go a few steps back from that, a lot of work is being done in supply chain. We’ve done a bunch of work in those areas as well. An emerging area is non-fungible tokens (NFTs), or digital objects with a certificate of authenticity created by blockchain.

We’re currently working on an NFT marketplace for script writers to get more exposure for their movie scripts, get them funded, and earn a better share of the deal for the original artists behind a script. There’s a lot of crazy stuff happening in the NFT space at the moment, but the concept of improving creative industries and getting a better bargain for artists is an exciting concept and something that we’re probably going to see more of.

Key challenges

What are some key challenges of the blockchain projects you’re working on? A logistics company with a blockchain platform will need to onboard their entire supply chain, which is not always easy to achieve. So, we see many walled gardens of blockchain solutions that are not interconnected, limiting the full potential of the technology.

Feeney: That’s a really good point and this falls into the back of the public versus private blockchain debate which seems to shift every few years with regards to where enterprises should be building blockchain solutions.

The way blockchain achieves value is through its security and immutability, which come from decentralisation and the openness of the blockchain network. And that value is directly proportional to the number of participants in the network. You can have your own blockchain network that has the best of everything, but if you're the only one on it, your network is going to be useless.

However, enterprises don’t want to build on public blockchains at the moment because of the regulatory grey area around who holds the data. So, large companies come to us wanting to build a blockchain network, but they want to maintain the intellectual property and run all the nodes themselves.

These private networks are better than existing legacy centralised systems, but I will be interested to see, over the next few years, whether enterprises will use public blockchains through the likes of EY’s Baseline protocol and other enterprise grade protocols for public blockchains.

Once we find ways to get enterprises on large scale blockchain networks, that’s when they are really going to unlock the potential of blockchain rather than limit themselves to walled blockchain gardens.

Do you think that governments can play a key role in spurring blockchain adoption?

Feeney: The Australian government has come out with a blockchain roadmap. It is quite supportive of the blockchain industry and has thrown a bit of money at solutions that can reduce compliance burdens through blockchain systems. But ultimately, the solutions are going to have to come from industry groups and leaders getting together to map out these networks to build on. But the government absolutely has to put the right framework in place for those systems and networks to be able to get up and running.

There have been cases of hackers breaking into blockchain platforms. What are your thoughts on that, and have those security incidents affected people’s confidence in the technology?

Feeney: I think the biggest issue here is the misconception around what has been hacked. If you look at public blockchain solutions like Bitcoin, there hasn’t been a single instance where someone has managed to hack the bitcoin ledger, modify a balance or break any of the rules. That is an unprecedented security record for any information technology system. The same is true for Ethereum.

What’s being hacked is usually some sort of exchange or centralised service which sits on top of the blockchain. When you’re building out blockchain applications, there’s going to be a small component that’s going to sit on the blockchain. So, you can’t just assume that because you’re using blockchain, it’s going to secure your application. There are additional security practices that go into building blockchain applications to secure the so-called “off-chain” elements. And usually, these hacks and security breaches come down to human error. In the case of a smart contract, you could also have bugs that allow someone to do something that’s perfectly acceptable by the blockchain, but it wasn’t intended to work that way by the developers who wrote it.

That’s a challenge we face as well, because we write a lot of smart contracts that have millions of dollars locked away in them. And so, ensuring that your code works exactly as you intended is super important and that’s why there’s a very large role to play for smart contract audits in the blockchain space.

Blockchain is not good for locking up or hiding financial or health data, but it is an excellent use case if you want the data to be immutable and not be modified

Moving forward, are you planning to expand out of Australia? Labrys appears to have a really unique value proposition and I haven't seen a blockchain consultancy like yours in Asia.

Feeney: We’re definitely growing at the moment. About 50% of our clients are based in Australia and the rest are scattered around the world. We’re certainly not just limiting ourselves to the Australian market. We see blockchain as a major opportunity and I believe we’re still in the very early stages of blockchain adoption.

We’re thinking in terms of decades, not in months or years and I think in the next decade, organisations across all industries are going to need to integrate or use – whether directly or indirectly – blockchain technology in some shape or form. We’re very much in a position to capitalise that and be a market leader. Our mission is to grow to a size that can assist organisations around the globe make that transition towards blockchain.

Some of the big software companies have also started selling their blockchain platforms to large enterprises. Do you see them as competitors?

Feeney: A key value proposition that we have at Labrys is we are blockchain agnostic. We’re not going to try and sell you a Labrys blockchain just because we have an incentive to do so. For every client that we engage, we assess their problem and evaluate what is going to be the best solution for their business, whether that’s a public blockchain or a private hyperledger. I think those organisations that have a blockchain platform to sell are actually at a disadvantage.