You have probably heard people speak about ‘blockchain’ with awe, some claiming it is as revolutionary as the internet – but is it? In short, blockchain represents not just a change to technology, but a seismic shift in the way the world does business. And like the internet, blockchain has the potential to remove intermediaries in transactions while improving transparency, likely changing entire industries and economies as a result.
What is blockchain?
Blockchain usually describes a distributed ledger structure and distributed consensus process. As shown in the diagram at the right, transactions such as financial transactions must currently be verified through a clearing house or intermediary. For example, if you wanted to transfer money to someone overseas, you would need to verify with your bank that the money exists in your account, then the transaction would need to be verified by the recipients bank. However, with blockchain, the ‘truth’ of a situation is established by consensus, and this consensus is recorded as part of the blockchain. This record of the consensus, of the transaction, in the blockchain is extremely difficult to change or remove.
When a new transaction is initiated, participants in the network — all of whom have copies of the existing blockchain — run algorithms to evaluate and verify the proposed transaction, and if there is a consensus, another block is added to the chain.
Companies are increasingly facing data management and security issues, and the pace of international trade has increased exponentially in just the last few years. Many top firms see blockchain as a transparent way to track the ownership of assets with security built into the process, allowing companies to track assets through supply chains, speeding up transactions, cutting costs, and reducing fraud.
Where did it come from?
The word you’ve most likely heard in connection with blockchain is ‘Bitcoin.’ This is because Bitcoin, the digital cryptocurrency, was the first application built on top of blockchain. In 2008, a person (or group of people) known as Satoshi Nakamoto published a paper describing Bitcoin its use for sending payments between any two willing entities without the need for a third-party financial institution over the internet. With fluctuations of the digital currency dominating news around Bitcoin, the revolutionary blockchain technology implications often get lost in the discussion.
What could blockchain be used for?
Federal Reserve governor Lael Brainard delivered a speech on blockchain October 7 at the Institute of International Finance in Washington, D.C. saying, “We are paying close attention to distributed ledger technology, or blockchain, recognizing this may represent the most significant development in many years in payments, clearing, and settlement.”
Blockchain allows for so-called ‘smart contracts’ where the contract specifies the conditions under which the transaction will automatically be processed, for example defining the conditions under which corporate bond transfer occurs.
Financial institutions and technology giants have voiced their interest in blockchain, with IBM publishing self-funded research suggesting around 15 percent of all banks will invest in blockchain technology by the end of 2017 and nearly two-thirds of banks will have formal services in place within three years.
A similar 2015 report from Spanish bank Santander suggests a massive reduction in infrastructure costs to banks of $15 billion for cross-border payments, the trading of securities and regulatory compliance from 2022 by employing blockchains. Google is conducting investigations with Royal Bank of Scotland, Microsoft is exploring blockchain with Bank of America and Merrill Lynch, and global bank UBS is throwing resources into the process as part of the R3 consortium of financial companies that are jointly research and developing blockchain applications.
In Australia, the Commonwealth Bank of Australia joined a consortium of global banks testing blockchain, and the Australian Securities Exchange is testing whether blockchain could replace its existing settlement systems allowing for real-time settlement.
But blockchain has benefits far beyond just financial transactions. Below are just a few uses for the revolutionary technology.
Internet of things
Blockchain could allow for massive changes in supply chain management and workflow through the trend towards internet connected appliance, or the ‘internet of things.’ For developers and those in the construction industry, with computer chips attached to key appliances and materials, parts could be tracked through customs, delivery trucks and to building sites. .
Cracking down on piracy
Blockchain could also make music piracy more difficult, by publishing music and other media with unique ID and time stamp in a way that is effectively unalterable. All records in the blockchain would store metadata contain ownership and rights information in an indelible way. For a country known for its high piracy rates, this could change the way Australians consume television, films and music.
Blockchain has the potential to inject trust and accountability into many processes in e-government, including allowing the sharing of sensitive personal data between departments that prevents data leaks while still allowing for data integrity checks.
The Credits Blockchain-as-a-Service (BaaS) is now available on the GDS Digital Marketplace under the G-Cloud 8 framework agreement for use in secure UK public sector cloud-hosted projects.
The US state of Vermont is testing a blockchain to store government records, while the central American nation of Honduras is doing likewise for property transactions. Through an exclusive partnership with real estate tech startup Velox.re, Chicago’s Cook County, the second-largest records office in the United States, will test the use of blockchain for transferring and tracking property titles and other public records. Earlier this year, the Crown Prince of Dubai announced a strategic plan that would see all government documents secured on a blockchain by 2020.
Energy transfer and sustainability
While much of early blockchain interest is driven by financial institutions, experts believe that blockchain technology will change corporate sustainability strategies by changing the supply chain and also providing new methods for energy procurement.
In just four weeks from concept to execution, Nasdaq and IDEO CoLab and an Internet of Things device startup Filament put together an entirely new system of automating the creation of renewable energy certificates.
“Virtual Power Plants” (VPPs), energy generating resources connected across a smart grid not necessarily concentrated in one location like a traditional power plant could also use blockchain to optimise power resources across an evolving electric grid.
“Imagine living in a community where your neighbor is able to produce excess energy,” said David Bartlett, chief technology officer for GE’s digital power services business Current. “Rather than just buying a credit, you know you’re buying that energy from your neighbor. You’re getting the most efficient transfer of that energy.”