One of the hottest topics in tech and innovation over the past year has been blockchain technology. Blockchain is shaking up the global fintech industry, threatening to disrupt the way we think of fundamentals such as money, banking and finance.
Blockchain technology came to prominence in the past couple of years principally through its use as the backbone for the digital currency bitcoin. While the fortunes of bitcoin have weathered a few storms of late, blockchain is being taken seriously not only by the banking and finance industries, but also by those working at the forefront of service provision in areas such as government, security, and insurance.
In fact, the World Economic Forum has convened a group to look into the development of blockchain as part of the future infrastructure for global banking and finance, as well as explore its potential for uses beyond that.
The Global Futures Council on Blockchain Technology is chaired by the former president of Estonia, Toomas Hendrik Ilves, who says blockchain is still in an early stage of its evolution, but holds the promise of changing the way we undertake not only monetary transactions, but also other exchanges performed on digital platforms.
“The distributed ledger or blockchain system of preserving data integrity and security is one of the most promising new technologies to emerge in the past decade. Its full potential is only now beginning to be realised,” Ilves said.
The use of blockchain technology for bitcoin has provided a useful test case scenario for how the technology can be applied. However, because of some of the more mysterious elements of the bitcoin story, it has also made it hard for people to fully understand how blockchain works and what its applications might be in the ‘real-world’ beyond cryptocurrency.
Its association with bitcoin has perhaps tarnished blockchain’s reputation a little in the eyes of more traditional observers. But that hasn’t stopped forward-looking institutions, including the Commonwealth Bank, from looking at how blockchain can be used effectively and profitably.
Only last month, CommBank undertook what it said was “the first global trade transaction between two independent banks combining the emerging disruptive technologies of blockchain, smart contracts and Internet of Things”.
CommBank outlined some of the major benefits that could be derived from using blockchain for trade transactions:
“The use of blockchain technology creates transparency between buyer and seller, a higher level of security and the ability to track a shipment in real time. The advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger reduces errors and accomplishes in minutes what used to take days.”
At its most basic, blockchain authenticates transfers of any value or assets that can be digitally coded by recording these transactions on a public distributed ledger that is held across a network of decentralised computers.
Blockchain researcher Bettina Warburg describes the operation of blockchain as “not an app, not a company, but closest in description to something like Wikipedia”.
“Blockchain technology is a decentralised database that stores a registry of assets and transactions across a peer-to-peer network. It’s basically a public registry of who owns what and who transacts what. The transactions are secured through cryptography, and over time, that transaction history gets locked in blocks of data that are then cryptographically linked together and secured. This creates an immutable, unforgeable record of all of the transactions across this network.This record is replicated on every computer that uses the network.”
Warburg says blockchain has the potential to turn “uncertainties into certainties” while at the same time removing the need for mediating ‘middle-man’ institutions.
This idea of a decentralised database for value transactions brings into question what the role of intermediary institutions, like banks, will be in a world built on blockchain. This is of course why major financial institutions around the world are trying to work out how they fit into this picture and how they are going to stay relevant and create products to monetise this technology.
IBM chief executive Ginni Rometty compared the scope of blockchain’s potential to the internet’s effect on information exchange: “The blockchain will do for transactions what the internet did for information.”
And while blockchain is being talked about as a revolutionary technology for banking and finance, entrepreneurs and thought leaders in other areas are already advancing ideas on how blockchain could be used to disrupt industries such as entertainment, property, and pharmaceuticals.
Jamie Smith, chief communications and marketing officer of The BitFury Group, and co-chair of the Global Future Council on Blockchain, says it’s still too early to really know just how far-reaching and transformative blockchain could eventually become, but he says the technology can at the moment be compared to where the internet was in the early 1990s.
“There are so many possible applications of blockchain. You can literally transact anything. It could be used for welfare distribution, or for secure voting, land title transfer, music, movies, you name it,” Smith told the World Economic Forum website in an interview.
“I believe that in a few short years, we will be living in a world where it is being used but no one thinks about it – they just like the ease of use, the low cost and the security – the great trifecta.”
Blockchain may feel like a world away from how we do business now, but just think about how rapidly the internet became an essential part of our business and daily lives, and you might gain an appreciation for how quickly we might all be living in a blockchain-powered world too.
Fi Bendall is CEO of The Bendalls Group, a business that leads STRATEGY : ADVOCACY : MOBILE delivering the business acumen to drive effective positive results in a disruptive economy for the C-suite. Fi has recently won a Westpac/AFR 2015 100 Women of Influence award.