Blockchain: Beyond bitcoin, The Week UK
Blockchain: Beyond bitcoin
Bitcoin stormed into the spotlight at the beginning of two thousand fourteen as the price of the “cryptocurrency” skyrocketed.
At one time it might have seemed we were witnessing the beginning of the end of conventional money, with all manner of dramatic implications for our financial institutions.
But things have calmed down since then and bitcoin has withdrawn from the public consciousness, not least in the wake of the collapse of what was by far its largest exchange, MtGox.
In the background, tho’, a broader switch could be taking place. Businesses have been looking at the technology behind bitcoin and thinking about the vast efficiencies it could bring to their processes.
Last month, banking giant Barclays did something totally unprecedented – and that you most likely didn’t hear about.
The bank partnered with Israeli startup Wave to carry out what it claims was the world’s very first trade transaction using blockchain, the “distributed database” technology underpinning bitcoin.
The transaction, which ensured $100,000 worth of dairy products being exported from Ireland to the Seychelles, took less than four hours. In the days of instant banking that might seem like a long time, but it’s actually phenomenally brief – normally such a deal takes seven to ten working days to finish.
Blockchain is a permanent, immutable, decentralised ledger of transactions. A database is maintained and continually circulated by all of the parties involved, maintaining an ever-growing record of activity. For example, every bitcoin transaction ever conducted has been recorded on the blockchain.
As the database is stored over a network of computers it is utterly difficult to alter or erase. It can also be public, permitting anyone including governments or law enforcement agencies to view it.
One interesting application of the technology is Everledger, a permanent decentralised ledger recording the transaction history and certification of over 980,000 diamonds. Normally a diamond’s history would be total of various lumps of paper, which could be lost, stolen or forged.
With Everledger, a diamond’s entire supply chain and history is recorded in an accessible, linear and secure way.
Leanne Kemp, founder and chief executive officer of the company, says: “Blockchain has infinite possibilities but we’re still in the early stages of unlocking its potential. I envision the blockchain space evolving over the next ten years similar to how we think about the web today; it will be the natural fabric of our everyday routine but not something we conspicuously think of day to day.
“We’ve embarked to see a natural movement in business to digitise records and implement clever contracts to expedite the movement of assets and process payments in a very secured environment. Our business at Everledger concentrates on protecting the provenance of an asset as it moves through the supply chain process by creating a permanent record of the item built on the highly-secure IBM blockchain business network.”
The idea of a “smart contract” is another tantalising possibility with blockchain.
Imagine a trade contract that could alter itself based on switching conditions. If a buyer agreed to purchase a certain amount of a given commodity as long as it didn’t fall below a certain price, a brainy contract could manage this – switching the registered ownership of the asset if the price was right, and switching it back if necessary.
These kinds of paper-saving, cost-saving, ultra-efficient transactions are a mouth-watering prospect to gigantic banking institutions.
An example of the use of blockchain in retail banking is the latest collaboration inbetween IBM and a French bank, which used a “permissioned blockchain” – which only recognises transactions from a verified list of parties – to bring together all its different customer identity management processes into one efficient record, including everything from mortgage applications to bank account opening.
In brief, rather than having records spread across the business that would require a unique verification processes, blockchain brings all of this together. According to IBM, using blockchain in this way improves consistency, traceability and privacy of the information – necessary in such a very regulated environment as banking.
But the benefits are about more than just efficiency: it hints at an evolved business model that enables the bank to sell a broader cross section of relevant products. Indeed, IBM forsees blockchain making its way not only into financial services, but also risk management, digital rights management, the internet of things, and even healthcare.
Kemp adds: “Blockchain as an environment permits industry to better engineer solutions for a diversity of scripts where trusted data and secure transactions are required. This will become increasingly significant as the technology is used to facilitate communication inbetween numerous stakeholders, from governments and citizens, to banks and customers.”