The financial world’s excitement over adopting the cryptocurrency Bitcoin has undoubtedly see-sawed ever since the code was first released on 9 January 2009 by a person who assumed the name, Satoshi Nakamoto (http://bit.ly/21pI0gT).
However, there is no such uncertainty among companies globally when it comes to exploring the adoption of blockchain—the underlying technology that powers Bitcoin.
Banks and financial institutions have clearly been the first movers. Royal Bank of Scotland Plc. (RBS), for instance, is aiming to pilot a service based on blockchain technology. Visa Inc. is planning to use blockchain to improve its digital payments processes. ICICI Bank Ltd, India’s largest private bank, too is gearing up to use blockchain technology (http://bit.ly/1TSKr95) to make banking more robust and secure.
Blockchain is a distributed ledger shared via a peer-to-peer network that maintains an expanding list of data records. Each participant has a copy of the ledger’s data, giving everyone a ledger that reflects the most recent transactions or changes. Thus, blockchain reduces the need for establishing trust using traditional methods. Blockchain acts as an open ledger and reduces the duplication of access to data or checking of data. The other benefits are scalability and lower cost.
Blockchain holds the potential for all participants in a business network to share a system of record. This replicated, shared ledger provides consensus, provenance, immutability and finality around the transfer of assets within business networks—reducing costs, complexity and time, underpinning shared, trusted processes, enabling trusted record-keeping and improving discoverability, according to a January Finextra white paper by International Business Machines Corp. (IBM).
The benefits of blockchain are not restricted to banking and financial institutions. Blockchain has been recognized as a “game-changing digital technology for enterprise transformation", according to a January report by IT services provider Persistent Sytems Ltd. With good reason.
Many companies are trying to build applications on top of blockchain to offer solutions across industries. Consider the case of Mahindra and Mahindra Ltd (M&M), which has identified pilots in financial services, supply chain, solar charging and electric vehicle charging, among others, where it can use blockchain technology (http://bit.ly/1U4xYCl).
For instance, in automobiles, if there’s a potential part failure, you can use blockchain to know exactly who supplied that part, etc.—traceability becomes much easier.
On 23 September, coindesk.com reported (http://bit.ly/2d9l5rx) that the world’s largest mining firm by market value—BHP Billiton—intends to begin using the Ethereum (a blockchain custom-built by Switzerland-based Ethereum Foundation) to improve its supply chain processes by recording “movements of wellbore rock and fluid samples and better secure the real-time data that is generated during delivery".
Even governments have realised the value of blockchains. Australia Post has set out a plan to use Blockchain in election voting while Estonia is already using Blockchain in its tax and business registration systems. And so are other governments like the US, UK, Russia, Sweden and Singpaore (http://bit.ly/2bxhOg1).
On 1 May, The Wall Street Journal reported that Delaware, the US state that incorporates the most public companies, is exploring the use of blockchain technology to move more of its paperwork to cheaper systems.
The very next day, coindesk.com reported that the Commonwealth Secretariat, the executive arm of the 53-member Commonwealth of Nations, launched a blockchain-powered secure communication tool geared for governments and law enforcement agencies.
Developed in partnership with UK-based start-up Digital Identity Security Company (DISC), the project is designed to offer a secure means of communication for government and law enforcement agencies within the Commonwealth.
It’s no surprise, then, that venture capitalists and companies are increasing their investments in blockchain. The total venture capital investment in bitcoin and blockchain start-ups exceeded $1.1 billion in the first quarter of 2016, according to coindesk.com.
IBM, on its part, has earmarked $200 million for a decentralized and distributed Internet of Things (IoT) platform incorporating the blockchain database technology. Information technology services firms Tata Consultancy Services Ltd (TCS), Infosys Ltd and Cognizant Technology Solutions Corp., too, have boosted investment in blockchain technology and are exploring ways to build applications around it.
The success of blockchain lies in the fact that it establishes trust, accountability and transparency. “In a blockchain you have to get to a ‘truth’, and that’s the trust model also known as consensus," explained Gururaj Rao, an IBM Fellow. Consensus is a method for validating the order of requests, or transactions (deploy and invoke), on a blockchain network. One way to do that, he added, is by using the PBFT (Practical Byzantine Fault Tolerance) algorithm.
“There was the BFT, Byzantine Fault Tolerant model, and then there is a practical version of it (PBFT), and now that’s going to be further improved in terms of the efficiency," Rao said.
Companies across sectors will begun adopting blockchain technology faster if the blockchain records are “encrypted and digitally signed", Rao suggest. “Blockchain records must have access policy, privacy and confidentiality," he insists.
Rao points out that companies that want to adopt blockchain technology must first identify the problem they are trying to solve. They should also “have the awareness of what a smart contract can do".
The other part, he says, is around deployment—what deployment model do you want? Is it something that requires a high security business network? Is it something that needs to be on-premise? Is it something that can be a managed service, meaning cloud?"
Rao advocates an “OpenSource" model to establish a common foundation for blockchain systems, which can enable interoperability and allow businesses and organizations to build applications on top of that foundation for specific industries. IBM, for instance, is a founding member of the Hyperledger project—a Linux Foundation collaborative project whose 81 members include Accenture Plc., Intel Inc. and JPMorgan Chase & Co—which is developing a blockchain atop Ethereum, according to a 4 October report by Fortune (http://for.tn/2durOtA).
The Hyperledger project (https://www.hyperledger.org/about) was set up to advance blockchain technology by identifying and addressing important features for a cross-industry open standard for distributed ledgers that can transform the way business transactions are conducted globally. According to Tapscott Group chief executive Don Tapscott, blockchains could revolutionize the world economy.
In an interview with McKinsey’s Rik Kirkland (http://bit.ly/1s2rrMp), Tapscott explains how blockchains may facilitate collaboration and tracking of all kinds of transactions and interactions. Tapscott, co-author of the new book Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, also believes that blockchain could offer genuine privacy protection and “a platform for truth and trust".