Anyone with access to a computer in the past 10 years has heard about the cryptocurrency Bitcoin and its more recent competitor, Ethereum. But there is a lot of doubt about whether these currencies, or their successors, will ever replace national currencies such as the British pound or the US dollar.
What is blockchain?
What is not in doubt is that blockchain, the underlying infrastructure to these currencies, is on the cusp of changing how the world does business. Put simply, blockchain is a public electronic ledger that can be easily shared by a group of disparate users. Blockchain creates an unchangeable record of each transaction, which are time-stamped and linked to the previous one, hence the name. As each un-erasable digital record – known as a block – can only be updated through a consensus of users, the blockchain represents a highly secure record of each and every transaction in the system.
Blockchain as a priority for senior executives
An anonymous online Deloitte survey questioned 308 senior executives at organisations with US$500 million or more in annual revenue. These executives self-identify as being knowledgeable about blockchain, and many of them agree that it is one of their company's highest priorities.
A narrow majority (37 per cent) cite blockchain’s inherent security features as the main reason for their enthusiasm, while 36 per cent believe blockchain will improve systems operations either through reducing costs or increasing speed – or both. The remaining 24 per cent think the technology could enable new business models and revenue streams.
Because blockchain is almost impossible to hack, it’s not surprising that the financial services and healthcare industries have been at the forefront of adopting this technology. The logistics and energy industries aren’t far behind, and there is massive potential for the technology to completely change our society.
The idea of a smart contract – a computer programme that will automatically execute on a contract once the required conditions are fulfilled – has been around since 1993, but blockchain is seeing it creep closer to reality. So close that IBM, AIG and Standard Chartered Bank recently announced a pilot project to streamline one of the most complicated financial instruments commonly used today: a multinational insurance policy.
The trio wrote as a smart contract a master policy in the UK that included insurance policies in the US, Kenya and Singapore. All parties involved in the contract, including auditors, regulators and brokers, have real-time access to policy data and documentation. And because its stored on the blockchain, there is one version of the truth that all parties have access to – no party can make changes without the consent of the others.
To put this into real terms, an Accenture report found that of the world’s 10 largest investment banks, eight could reduce infrastructure costs by 30 per centon average by adopting blockchain technology.
The end of transaction fees
Whether you’re a business or an individual, if you make a transaction through a bank or another intermediary such as eBay, there is almost always a fee involved. For businesses, there is the opportunity to reduce or even eliminate such fees.
One example is B2B payment startup Veem, which uses blockchain technology to enable its SMB customers to transfer funds for free. For individuals, OpenBazaar, a peer-to-peer e-commerce application that leverages the Bitcoin blockchain, allows anyone to buy anything from anywhere in the world without an intermediary getting involved.
Safely sharing patient data
There is not a developed country in the world that is not working on implementing electronic health records and not struggling with the critical question of how to share sensitive medical information without risking the patient’s privacy. This is a question that the MIT Media Lab and Beth Israel Deaconess Medical Center answer in the affirmative with its analysis paper, A Case Study for Blockchain in Healthcare.
Enabling energy microgrids
In most countries, rooftop solar owners are at the mercy of their energy provider, which typically has a take-it-or-leave-it feed-in tariff. But blockchain could potentially enable microgrids, a form of distributed energy generation that functions separately to a traditional centralised power grid. A pilot programme has been set up in the Park Slope area of Brooklyn, New York. Comprised of solar panels, storage and control systems, the system uses blockchain to record every transaction with the local utility whether the system is drawing power from the main grid or selling it back.
One of the biggest barriers to the full digital transformation of the world economy is security. Parties to transactions need to be able to trust each other and know that everyone is who they say they are. Blockchain technology promises to lower the risk around financial transactions and could well be the final piece in the digital puzzle.