Blockchain – Enabling Trust on the Internet
New technologies continue to influence how we live, work and play. Artificial intelligence, virtual reality, augmented reality, driverless cars, drones….the list goes on. One technology that is quickly making its way into the mainstream discussion is blockchain. I had always associated blockchain with Bitcoin, but started to see it pop up in other contexts. The geek in me decided it was time to explore what the blockchain is all about. What I learned is that it can increase trust and simplicity in how we exchange value across the Internet and thus has potential for much broader application. If you have not already put it on your radar, it is time to understand how it can affect the way you run your operations and deliver services to your customers.
What is blockchain?
Blockchain first gained attention in 2009 with the launch of Bitcoin, a cryptocurrency that is traded over the Internet. Bitcoin created a lot of attention because it is not tied to any country and is exchanged directly between individuals, without the need for a middleman or trusted third party, such as a bank, credit card company or PayPal.
Blockchain is the underlying technology infrastructure for Bitcoin, Ethereum and other cryptocurrencies. Blockchain is a globally distributed database of transactions that is public, and does not need a central authority (such as a bank) to vouch for, or record the transaction. Computers in the network work together to verify each individual transaction through a consensus process. Once a transaction is verified, it is recorded in a ‘block’ that is then stored chronologically as part of a blockchain that is replicated across all the computers in the network. A full copy of every transaction is stored in the network and the history is available to participants in the network.
Configurations of blockchain exist in different industries and can serve different functions. “The Bitcoin blockchain, for example, is open, public and “permissionless”, meaning anyone can participate in the network and contribute to the database.” Many companies are now exploring private or “permissioned” versions of blockchains in which all the nodes in the network are known.1
While each configuration will operate in a slightly different way, they all have the two key elements in common:
Why is blockchain important?
One of the key benefits of the blockchain is that its distributed database of encrypted transactions is very difficult to tamper with. To edit, or remove a transaction would require gaining control of 51 percent of the computing power in the network, making it virtually unhackable. This is significantly more difficult than the situation today, where one only needs to hack into a central node to gain access to all the data in the network. For example, the attacks on Yahoo, and Democratic National Party computers.
As Don Tapscott, author of Blockchain Revolution puts it, blockchain provides “An immutable, unhackable distributed database of digital assets.”2 As such it has the potential to provide a trusted platform for exchanging and tracking many different forms of value across the Internet, from identity (e.g. birth certificates, education achievements), ownership rights for property, medical information, insurance claims, and even votes. And, its ability to eliminate the need for a trusted center to process a transaction, creates opportunities to reduce costs and disrupt business models across many sectors.
Why pay attention to Blockchain?
Many financial institutions have been experimenting with blockchain or back office operations as well. More than 75 of the leading financial institutions have now joined the consortium R3 to work together to design and deliver advanced distributed ledger technologies for the global financial markets.3
As interest and investment in new blockchain technologies has grown, new applications have continued to emerge outside of finance space. Major tech companies like Microsoft, IBM, Deloitte are all exploring the potential for blockchain technologies in the enterprise. The Hyperledger project is a global open source initiative sponsored by the Linux Foundation to advance the use of blockchain technologies across industries. It currently has 100 members including leaders in finance, banking, Internet of Things, supply chain, manufacturing, and technology.4
A recent Deloitte survey of ‘blockchain savvy’ executives, suggests that 12% of big businesses familiar with blockchain may have already deployed blockchain projects, and 42% thought it will disrupt their industry.5 And a recent survey of CMOs by the Economist Intelligent Unit, found that 10% of the CMOs surveyed considered it one of the top three technologies that would have an impact on their organization by 2020.6
The Deloitte survey also found that “Over a third (36 percent) of respondents credit blockchain with the potential for improving systems operations, either by reducing costs or increasing speed (18 percent each). More than a third (37 percent) cite blockchain’s superior security features as the main advantage of the technology. And almost a quarter (24 percent) of executives surveyed highlight the potential for blockchain to enable new business models and revenue streams.” 7
There are still several issues that need to be addressed before widespread adoption of blockchain will happen. These include questions related to technology, applications as well as governance, regulations and standards. With it’s potential to eliminate the need for central authorities, blockchain may also have a significant impact on people and jobs. Work has begun to explore all these areas.
The bottom line? Blockchain is still in a nascent stage. It is a complex technology and it is difficult to predict when or what will cause it to reach a tipping point. What I do know is that its’ potential to dramatically increase trust and transparency will impact the way that we exchange and manage value across the Internet. And that means that there is much more to come. For me, it’s not a question of if, but when and how.
What does this mean for you?
It’s now up to all of us to understand and collectively shape the potential for blockchain. Familiarize yourself with the technology and explore how it may impact your company, customers and all stakeholders. Here are just a few examples of early applications leveraging blockchain.
Finance and Payments
Blockchain has been best known for enabling cryptocurrencies. While there are several cryptocurrencies that have emerged, Bitcoin remains the biggest by far with a market cap of $15B. Coinbase has a digital currency wallet and platform that merchants and consumers can use to exchange digital currencies. The space has evolved to the point that there is even a company providing research into the state of the Bitcoin economy – Coinometrics.
Examples of other payment solutions using blockchain include:
Gyft, an online platform to buy, sell and redeem gift cards is offering a solution for small and medium sized businesses using blockchain. Align Commerce has integrated blockchain into its business to business global payments solutions also targeted to small and medium sized business. Abra is using it to enable individuals transfer money to each other around the world, with or without the use of a bank account. This has the potential to bring billions of people into the global economy.
UjoMusic’s micropayments solution, demonstrates the potential for micropayments to be a viable business model for advertisers and content owners.
Many financial institutions are also exploring the use of blockchain within their own operations to improve efficiencies and transparency.
Blockchain technology offers promise as a way for individuals to protect and securely manage their personal identity and data, enabling them to share only the elements of their identity required for any specific transaction e.g. bank loan, job application, medical data, online shopping, search.
Uport, is working on a solution that enables users to own and control elements of their identity, reputation, data, and assets.9 Personal BlackBox LLC., is developing solutions to help corporations and consumers better manage their relationship with data in a way that provides benefit to both parties.
The healthcare industry is looking at blockchain technology. In September 2016, Health and Human Services’ Office of the National Coordinator for Health Information Technology selected 15 winning white papers from the 70 submissions they received to a call for white papers on the application of blockchain to protect, manage, and exchange electronic health information in healthcare.10
Blockchain technology has the potential to add a layer of trust to collaboration, sharing and crowdsourcing activities. For example, Concur Reference Data is working with blockchain technology to enable the crowdsourcing of data error identification and correction for financial reference data used by both the buy side and sell side. Augur has created a prediction market platform that enables anyone to ask a question and tap into the “wisdom of the crowds”.
From property rights, to artwork, to IP, music, to the Internet of Things, blockchain provides a way to manage the authentication of assets and record a history of all related transactions.
UjoMusic provides a platform for artists to manage their own content and be paid for it. They demonstrated their vision by collaborating with singer-songwriter Imogen Heap on the release of her song, “Tiny Human”. All credits and terms of licensing were identified and in exchange for the digital currency Ether, people could download the song itself or all the vocal and instrumental stems of the song for commercial or non-commercial use. Smart contracts are used to immediately pay all the musicians to their personal Ether wallets.11
Supply Chain Transparency
Using Blockchain makes it possible for companies, and consumers to track inputs all the way through the supply chain, ensuring safety and ethical sourcing. Provenance uses blockchain to help companies increase transparency across the supply chain. Everledger, a startup in London is providing a ledger for diamond certification and transactions, benefiting insurance companies, law enforcement and homeowners.
Want to learn more? Here are a few resources to explore:
6 Economist Intelligent Unit, The Path to 2020: Marketers Seize the Customer Experience, 2016
1 Firms of Endearment by Raj Sisodia, David Wolfe, Jag Sheth, p.15.
2 Simon Sinek
3 IDC,CMO Advisory, “Annual IT Buyer Experience Survey”, 2013.