An Encrypted Future

Category: Business

The Case for Digitization by Blockchain

By Ben Walton, CHAMPtitles 

Digitization is the process of creating a digital representation of an asset. You can read more about that in our earlier post here

Blockchain technologies are well suited to be the system of record for these digital representations. They have the potential to improve asset security, efficiency of the processes involving the asset, and trust among the parties using the asset.

The blockchain structure can be thought of as entries in a book (or ledger). Each entry represents a transaction which includes creating, modifying, and destroying the digital representation. Due to the structure of a blockchain, an entry itself cannot be altered or removed. The only way to modify the state of an asset is through a new transaction. With this additional security, users of the blockchain are more inclined to trust the authenticity of the data on the ledger.

If you imagine that the entries in the ledger are about an asset (perhaps medical records) being shared or exchanged between two parties, then you can use the ledger to understand who has modified or transferred which assets. This provides built-in trust to the system due to the transparent nature of how the ledger stores data. A third-party auditor could easily look at the ledger and follow the flow of data to construct a timeline of which parties own or have edited which assets. This transparency will help to reduce fraud and eliminate disputes arising from two parties having differing information.

Another feature of blockchain data storage is that the ledger can be held in multiple locations. This way, the data is no longer siloed in one location, so it is more secure from cyberattacks that attempt to hold the data hostage until a ransom is paid or corrupt it in some way.

With this inherent trust between users of the blockchain system, the concept of programmable logic called smart contracts can be introduced. In the blockchain system, these smart contracts can be written in such a way that they automatically execute when certain conditions are met. For example, let us assume the asset is an eBook where Party A (Alice) owns the book and Party B (Bob) would like to purchase it. Alice has set a price of $20 for the book. Bob enters his payment information and creates an order to purchase the book up to a price of $50. Once the blockchain system recognizes that the book is available for purchase and someone has agreed to buy it for that price, the smart contract is automatically triggered and purchases the book for Bob from Alice for $20. The power of smart contracts is that they significantly improve efficiency. They can automate many of the processes, if not all, involving an asset.

Blockchain technologies enhance asset security, improve the efficiency of the transactions involving the asset, and increase trust among the involved parties. Blockchain may not be suited for all digitization efforts but is worth exploring and testing as a path for achieving digitization.

How to Digitize

By Ben Walton, CHAMPtitles

When starting an initiative that has never been done before, there is a high level of risk and uncertainty. Since there is no precedent, the approach needs to be highly iterative and adaptable as new information is discovered. This applies to the process of digitization since creating a digital asset is usually breaking new ground. To then reduce the associated risk and uncertainty, it is crucial to be well versed in a standardized methodology for digitization. A common method consists of these five phases:

  1. Problem definition 
  1. Discovery 
  1. Implementation 
  1. Testing 
  1. Launch 

The goal of the first two phases (problem definition and discovery) is to answer four questions: 

  • What is the problem? 
  • Who is affected by the problem? 
  • What is the solution? 
  • How will the solution solve the problem? 

Common risks in these phases include having a poorly defined problem, the wrong problem, or a problem that cannot be solved now. By taking the time to truly understand and then define the problem – the project’s why – these risks can be identified and managed. There are three core steps to this phase. First, use current knowledge to identify and describe all the pain points associated with the current paper asset including frequency, current cost (time/money), future cost, and so on. Second, write down a clear problem statement with a potential solution. Third, list out all the assumptions made for the chosen problem statement and solution.

To validate the problem, the first step of the discovery phase is to conduct primary and secondary research to prove or disprove the assumptions made and further detail the identified obstacles of the current state. This ranges from finding data online to interviewing stakeholders. Common assumptions are that the current regulatory environment of the paper process would support the digital asset and the competition does not pose an immediate threat. The output of this phase should be a business case for pursuing digitization that details all possible risks.

Based on the business case, a decision must be made to continue or end the project, which requires understanding the feasibility in terms of technology and regulatory environment and the amount of effort in terms of time and funding. If the project continues, then the implementation phase kicks off a solution pilot. Before that starts, certain success criteria should be defined so that the results can be measured in the testing phase. Testing will also validate the solution with customers and users to understand their reactions and solicit feedback. After testing is finished, the pilot is likely launched in a controlled environment and monitored to measure its effectiveness. Possible next steps include expanding upon the pilot, starting another pilot, or working to finalize a full solution.

For many, digitization is unchartered territory so following the method outlined above provides a road map while reducing the risk and uncertainty common to a brand-new initiative. Key milestones include having a clear problem definition backed up with data, a business case to pursue the digitization effort, and a pilot to validate the benefits of the solution. By using or adapting this methodology, the foreseen challenges can be anticipated, and the unforeseen ones can be managed to result in a greater chance for a successful digitization project.

Impacts of Digitization (Part lll of III) – Environment

By Ben Walton, CHAMPtitles

A process can be evaluated from an environmental perspective by measuring the amount of non-reusable resources required. A more environmentally friendly process uses fewer resources. To understand the relationship between digitization and its environmental impact, let’s look into the number of resources consumed by a process pre and post digitization.

An example to consider is a driver’s license. A paper driver’s license requires resources for its creation, transportation, and distribution. The industrial processes used to create the physical license consume water and fuel to run the machines and plastic for the license itself. Packaging the license uses paper or plastic and then more fuel is needed for the transport to state motor vehicle agencies. Paper may again be needed for envelopes to distribute licenses by mail. From the industrial processes to software applications used to manage the entire process, electricity will be consumed, which requires more fuel unless the generation of electricity is from a renewable source.

With a digital driver’s license, the paper version is eliminated, and with it, the resources needed to create, transport, and distribute it. However, there will likely be an increase in the number of software applications or features and internet-connected devices required. As a result, electricity usage will increase, which requires more fuel. To produce more devices, various metals and plastics will be consumed for the device itself. For the industrial manufacturing processes, packaging, and transportation of those devices, water, chemicals, paper, plastic, and fuel will be used.

Digitization reduces some of the non-reusable resources required by a paper process but also demands new ones, so there is a clear trade-off between the two. There must then be some sort of inflection point where the resource reduction is greater than the resource increase. Determining that point is highly process dependent and out of scope for this post, but we can look at current trends to predict its future. 

Three of the biggest cloud providers have made significant environmental commitments: 

  • In 2017, Google reached 100% renewable energy for their data centers and offices1  
  • In 2018, IBM set the goal to purchase 55% percent of its global electricity demand from renewables by 20252 
  • In 2019, Amazon committed to achieving net zero carbon emissions by 20403  

On the smart device side, Apple aims to “transition to recycled or renewable materials in [their] products”4. In 2018, the company wanted to use 100 percent recycled aluminum and had to develop a new alloy for it to be 100 percent recyclable4.  

No one process – digital or paper – is without any impact to the environment. Digitization saves trees and water, reduces pollution, and cuts down on fuel used by paper, but increases the demand for electricity and devices. The future date when a net positive environmental impact will be achieved from digitization has yet to be determined. Though with many technology companies taking greater action to reduce their environmental impact, there is hope that digitization will win out in the not-so-distant future.


Impacts of Digitization (Part ll of III) – Enhanced Security

By Ben Walton, CHAMPtitles

There is no process with zero risk, only those with very little risk. When improving the security of a process, the goal is to minimize risk as much as possible. To do this, all potential risks are identified, prioritized, and then mitigated, reduced, or accepted. In a paper-based process, there are inherent risks including fraud and loss. When the process becomes digitized, these risks are nearly eliminated.

Fraud can occur in a paper process due to the time lag between when a transaction takes place and when the system of record is updated. Let’s look at a hypothetical situation to better understand how this could happen. We have three individuals: A, B, and C. Individual A sells an asset to individual B. B verifies the authenticity of the asset against a third-party system – it is authentic, so B purchases the asset. B then mails a paper document to an authorized individual to update the third-party system with the change in ownership. Now A sells a duplicate or forged copy of the asset to C. Individual C verifies the authenticity of the asset against the system – it is still authentic because B’s paper document has not yet been received, so C purchases the asset. This time lag has allowed A to commit fraud and receive two separate payments for selling the same asset.

In the digital world, real time communication eliminates the time lag for transactions. Returning to our hypothetical situation, the system of record is updated or flagged as soon as individual B purchases the asset. When individual A attempts to sell a duplicate or forged copy of the asset, the authentication test fails revealing the inauthenticity of the asset attempting to be sold.

Loss, damage, or theft can occur when a paper-based process has an associated physical asset. Let’s look at the example of paying for something. Cash or a credit card can be stolen and then used to make a purchase. Cash can always be used to transact, and a credit card can be used until it is deactivated by the owner, which takes time.

In the digital world, digital payment methods such as Apple Pay provide more security. Theft can still occur; a smart device with a mobile payment option can be stolen and then used to purchase something. However, more built-in security checks mean there is a lower chance of it happening. For example, Apple Pay requires a password to unlock the smart device and then another password to access the application. Multi-factor authentication can also be enabled to add yet another password.

To be clear, digitizing a process does not make it completely secure, but it is infinitely more secure than a paper-based one because it eliminates the inherent risks that lead to fraud or loss. Digitization allows for real-time communication, which removes the time lag for transactions to be recorded and eliminates the chance an asset can be transacted upon twice. A digital asset in place of a physical asset allows for more security measures to be enabled to protect the owner from loss or theft. The relationship between digitization and enhanced security is appealing and further underscores the benefits of creating a digital asset. And still, there is one more to be addressed up next: the environmental benefits.

Impacts of Digitization (Part I of III) – Increased Efficiency

By Ben Walton, CHAMPtitles

Creating a digital asset may seem foreign or technically challenging. Is it time-consuming to create, does it cost more, and is it safe from bad actors? If the current process works well enough, why change?

That last point is the crux of the issue here. There are so many processes that remain paper based simply because they work reasonably well. Here we will make the case for digitization, starting with an argument for efficiency. 

Let’s look at three different ways to buy and then start reading a new book. In each scenario, the process becomes more efficient.  

Method 1: Travel to a bookstore to buy a book in person and begin to read at home. 

Method 2: Go online to a website to buy a book for delivery and begin to read when it arrives. 

Method 3: Pick up an eBook reader to buy a book electronically and begin to read immediately. 

Before we further analyze this example, we want to be clear that we are assuming the purchaser (new owner) of the book has no preference between a physical book and eBook.

For the customer, the biggest enhancement is the reduced time to transfer ownership of the asset (the book). The first method requires the buyer to leave home and perhaps not find the book in stock. The second method allows the buyer to stay home but requires them to wait days or weeks for the arrival of a book by mail. The third method allows the buyer to stay home, and the book is available to them immediately after purchase. The third method eliminates the transportation time to acquire the physical asset (a book) since the book is now a digital asset (an eBook). In this case, the time to transfer the asset is then instantaneous.

For the seller, the biggest enhancement is the reduced cost to transfer ownership of the asset. The first method requires the seller to rent a physical storefront to sell their books. The second method requires the seller to pay for a warehouse to store their books as well as the shipping and handling costs for each book. The third method only requires the seller to pay to build and then maintain the software/hardware used to access the eBook.

To better understand some of the potential cost savings, let’s look at some numbers. According to Statista.com1, there were 675 million physical books sold in the U.S. in 2017. Let’s assume half of those books (337.5 million) were bought online and require delivery. Amazon2 charges $3.99 for domestic standard shipping for each book. If we take that as the cost of shipping and multiply it by 337.5 million books, we arrive at about $1.35 billion spent on shipping annually! Of course, there were many assumptions made here, but even if the savings amounted to a fraction of what was calculated, that would be a substantial amount. And that is in addition to the money saved for the buyer on gas or public transportation and the seller on physical storefronts or distribution centers. 

We have established that digitization reduces the time and cost to transfer ownership, but it is also more efficient due to the elimination of paper. After all, eBooks do not have to be printed! It costs $3 to print a bookso printing all the 675 million physical books sold each year would cost about $2 billion. If half of those were sold as eBooks, that saves $1 billion on printing books! By eliminating paper in the process to create and then transfer an asset, the cost savings become very appealing. 

There are costs for publishing in a digital format that are analogous to printing in a paper format. According to one eBook converter and distributer4, a 100,000-word book manuscript in Word costs a one-time fee of $249 to convert into an eBook format and $99 for eBook distribution. These fees add up to the cost to print 116 books. Therefore, the cost to digitize a book becomes insignificant when compared to printing large numbers of books. The general trend is that the costs of digitizing an asset remain the same no matter the number of transactions on the asset.

For digitization, the final piece of the efficiency puzzle is that it also reduces the time and cost to verify ownership. We will cover this in more detail in a future post. 

In summary, a more digitized process generally leads to a more efficient process as we saw with the shift to eBooks. The close relationship between increased efficiency and reduced process time and costs may alone convince you that the benefits of digitization outweigh most costs and risks. Still, we continue forward in our next post with the impact of enhanced security. 


What is Digitization?

By Ben Walton, CHAMPtitles

Digitization is the process of creating a digital representation of something of value, resulting in what is called a “digital asset”. So, what is a digital asset? 

Let’s break that down. First, the asset part. 

According to the MerriamWebster dictionary, one definition of an asset is “an item of value owned”. Value can be monetary and/or give an individual access to something else. Ownership is required so that the asset can be transacted upon for a specific entity be it an individual, company, trust, etc. For any asset, there will be certain rules that define ownership, verification, and transference (if possible). 

An example of an asset is a music festival wristband. It has the monetary value of what it cost to buy and gives an individual access to the concert venue. Ownership is defined as possessing the wristband. Verification happens at the festival venue when the staff visually checks the wristband to confirm its authenticity. To transfer the wristband from one individual to another, the owner physically hands it over.  

Now, let’s define the digital part. 

For an asset to be considered digital, there are two key components. First, the asset’s information must be stored electronically. Second, the electronic information should be coded in a format that makes it receivable and acceptable to third parties. Simply put, the electronic asset must have utility to the original creator and any future owner. It is important to note that encryption and immutable ownership records are not a pre-requisite for digital assets, but as society looks to store more valuable assets in digital form, these features have grown in importance as they ensure the asset is correctly and honestly used to prevent theft, fraud, and forgery.  

Let’s consider the evolution of the humble concert ticket. Years ago, a paper ticket was used to enter the concert venue. The venue staff would tear off a portion of the ticket to show that it had been used. Nowadays, we receive an email of the ticket with a specific QR code. Once you arrive at the venue, the staff scans the code to confirm its authenticity and permit entrance. The concert ticket with the QR code has the same authority as the original physical ticket. Now why does this matter?  

When dealing with an asset that enables a person to access valuable benefits from the state or an employer, there needs to be a heightened degree of security to assure the legitimacy and provenance of the asset. An example is an asset like a birth certificate that provides an official government-issued record of a person’s birth and is generally required for school registration. So, for an electronic birth certificate to be considered “digital”, it must be accepted by the school as valid proof of one’s name, sex, and date and place of birth, meaning the digital version allows for the same action as the physical one.  

We can now conclude that a digital asset is electronically stored information that defines an owned item of value and has the same authority as the non-digital asset (if one exists or existed). By establishing this common definition of a digital asset, we can start the conversation around creating them and then using them. We can begin to explore the possibilities of what they can do, how they can be created, the internals of implementation, and so much more.  

Before we can dive into the specifics of digitization and digital assets, we should understand the argument for pursuing digitization. That is up next.