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Chain reactions

After cryptocurrency trading, the pioneers of blockchain data technology are promising nothing less than a whole new world economic order

• This revolution in the global economy looks rather like a youth science project. A desk in a corner sports two toy construction kits – red and black components assembled into robot arms, conveyor belts and a punch press. “Let’s say this is a factory in Shenzhen that makes car parts,” says Stephan Noller, indicating one kit. The other is “a car manufacturer in southern Germany”. Between them runs an invisible chain of data packages linking the two factories, the machines and the parts being produced. This is the blockchain, or digital ledger.

All over the world, people are discussing how long the hype over cryptocurrencies such as Bitcoin and Ethereum will last, how many people will grow rich speculating on the digital money that is independent of governments and banks, and how many investors will be bankrupted when the bubble bursts. Meanwhile, entrepreneurs like Noller and his company Ubirch are working to make the technology behind virtual currencies useable for concrete business transactions. Blockchains package, encrypt and distribute data around the world in the form of interlinked blocks. According to Noller, their potential extends far beyond financial transactions, because it is based on three principles, decentralisation, trust and security, “which are becoming more and more important in our interconnected economic world”.

The small demonstration model allows him and his team to emphasise their seriousness. “It is very important for us to be able to point to something highly practical, something you can touch with your hands,” says Noller. He is hoping to pitch his blockchain-based production model to machine and automotive manufacturers, among other industries.

“When our Chinese plant here manufactures a component, such as a car bumper, it logs all the manufacturing data into a public blockchain at the same time,” he explains. This means the data is packaged in encrypted blocks and stored in a decentralised form on computers all over the world. “The cryptographic key to this data, however, is carried by a chip or sensor built into the component itself,” Noller continues. What tolerances were met during the production process? How much energy was used? When, where and by which machine was it made, and in which factory? The factory in southern Germany receives all this information with the bumper.

Demonstrating with construction toys: Stephan Noller and his model

As the data was created during the manufacturing process and stored immutably in the blockchain, this information is trustworthy. “The machine that will use the component can automatically read this data and autonomously adapt how it processes the bumper in the light of that information,” says Noller.

This sounds very practical. Many manufacturing processes could be made more efficient and safer using automated exchange of data. “The blockchain-based flow of data can do a lot more than just that, though, I believe,” says Noller. “What we are developing here could fundamentally change the way people collaborate along industrial value-added chains.” Because the blockchain also serves “as a sort of digital notary, who keeps a record of all the relevant information and transactions and certifies their authenticity”. So the carmaker no longer needs to meet its Chinese suppliers in person in order to do business with them. From awarding a contract via quality checks to invoicing, everything can be done automatically via the blockchain – “It is enough for the machines to trust one another.”

Companies would even be free to switch their business associates at any time. “Companies within an industry could use a decentralised, worldwide database based on a blockchain to make available information about the manufacturing capacities of their machines at any particular time,” says Noller. “Manufacturers could then book this capacity automatically – for just-in-time production (JIT).”

Noller is a psychologist by training and as the vice president of the German Federal Association of Digital Industries (Bundesverband Digitale Wirtschaft, BVDW) he has had many discussions with politicians and business leaders. So he knows that such a scenario is anathema: both to medium-sized suppliers, who fear for their trade secrets and long-nurtured business relations, and to major corporations unwilling to disclose their data, but also to works councils, which worry that the machine data might be linked to data on the performance of the workforce. Noller is aware that he is still far from turning his idea into reality.

Two confident entrepreneurs: Stephan Noller and Robert Küfner (right)

“It isn’t a matter of the technical feasibility, though. The technology we have set up on that desk in the form of a construction kit model will be operating in a real-life factory before the end of this year,” he says. In 2018, engineers from the Rhineland-Westphalian Technical University (RWTH) in Aachen want to begin series production of the e-Go Life compact car, which they themselves designed. “We are working on enabling the manufacturing machines in the Aachen factory to communicate with each other soon using our blockchain technology.” (cf. brandeins 03/2017: “I must provide the impetus, or no one will believe me”.)*

Noller is not the only person currently working on this kind of pilot project. Developers and entrepreneurs in the crypto scene are also turning their attention to industry, with great confidence. “I really don’t want to come across as arrogant,” says Robert Küfner, “but we are the ones who understand this technology and who can implement the applications in the real economy.”

Küfner, 30, is one of the pioneers who got involved in the cryptocurrency business early on – and who made a great deal of money in a very short time. He offers businesses advice on blockchain applications through his company, a distributed ledger technology company based in Berlin, and the listed company Advanced Blockchain AG, specifically founded for this purpose. “It’s not as though we were a startup going from door to door and trying to sell our ideas to the big companies,” says Küfner. “Quite the opposite – the companies come to us. We are free to pick and choose our projects and partners. We determine the speed, and we decide which topics we want to pursue.”

This is because there are few experts who are actually able to implement the corresponding projects, he claims. Or who want to. “Crypto developers can hardly be motivated by monetary incentives,” says Küfner. “For one thing, many of them have made so much money through cryptocurrencies that they do not really need to work at all.” On the other hand, people who know their way around the scene could get hold of capital relatively easy via an initial currency offering (ICO), which is roughly like issuing digital shares (see Glossary).

“And don’t forget either that the entire crypto scene is in fact a political movement,” he says. “Many of the creative and brilliant minds in the scene would never allow themselves to be hired by a corporation. They are anti-government, often also anti-capitalism, coming from the same movement as Occupy Wall Street or the Pirate Party here in Germany.” There is one difference, however: whereas the Occupy activists and Pirates have largely vanished again, the crypto prophets now want to really get going – and change the world of business.

Lawyer Nina-Luisa Siedler advises crypto founders

Nina-Luisa Siedler, a Berlin lawyer who specialises in financial transactions, finds there is often a clash of cultures when startups from the crypto scene get together with established companies. She stumbled across blockchains more or less by accident a few years ago while looking into FinTechs – and nowadays spends her days organising ICOs and offering advice to crypto founders. “To begin with, I sat down with some friends from the scene here in Berlin and got them to explain what they were actually doing,” she recalls. “It reached a point where they simply said: Sorry, Nina, but your law isn’t attractive for us.” However, she believes that if you want to change things in the real world, you need to examine the legal framework.

“For some months, we have been seeing lots of projects in all sorts of different industries, where crypto developers and established companies want to collaborate with each other,” Siedler reports. Their understanding of each other is still limited, though. “The corporations want to stick to their business models, set their own standards and protect their profits.” Most want to “utilise a decentralised infrastructure in order to increase the efficiency of certain processes”. The developers in the crypto startups, on the other hand, are trying to convince the major companies to open up their information silos and to collaborate on the basis of open-source techniques. Ambitious projects, in the field of artificial intelligence, for example, require huge amounts of data. “An individual company cannot collect that data quickly enough,” says Siedler. That is why companies ought to share their data on open platforms – where no single party is in control.

Joachim Lohkamp, the founder of the Berlin blockchain startup Jolocom

But according to Joachim Lohkamp, the founder of the Berlin blockchain startup Jolocom and treasurer of the German crypto scene’s lobby group, Blockchain Bundesverband, few companies are currently prepared to take such far-reaching steps. “If the blockchain technology is to unfold its full potential, everyone involved first needs to understand what it is all about – companies, as well as politicians and consumers,” he says. “The big advantage of the blockchain is that the flow of data becomes more transparent and easier to share. Yet at the same time, I remain in control of which data I share, when and with whom.” Lohkamp continues: “Our vision is for every person, every company, every institution, every thing to have its own, unforgeable and unique digital identity. And this identity must also be recognised by lawmakers, by public authorities and administrations. Only on that basis can blockchain applications really have a broad effect.”

His hopes have been raised by politicians such as the French president, Emmanuel Macron, who is sympathetic to this notion. “If someone like Macron says, ‘We are going to make government projects open source in the future, and we also expect companies to make their algorithms transparent and to share their data’, that is an important signal to companies and developers the world over that politicians in Europe understand what this is really about.”

Lohkamp is hoping for a similar signal from German policymakers. “I am cautiously optimistic that things are getting underway. After all, the word blockchain occurs in the coalition agreement no fewer than six times.” But concrete state-sponsored projects would be preferable to general declarations of intent. “Why not implement the planned European-wide drone register on the basis of blockchains right from the start, for example?” he asks. “Every drone would still have a classical number plate, but the more important component would be the blockchain chip or sensor that was built into it and that could be assigned to an individual or an organisation at all times.” He believes that a project like this could send a signal. “The political decisionmakers would demonstrate that this time they do not want to miss the digitalisation wave. And that they are creating the necessary environment in which blockchain applications can be implemented in compliance with the law.”