The sky’s the limit for blockchain

blockchain

For many, understanding that blockchain underpins crypto-currency Bitcoin is the entry point to understanding this technology.

What’s becoming clear, however, as momentum builds behind blockchain and distributed ledger technology, is that its potential to be transformative reaches across many different verticals – not just financial services, but also across many other industries and indeed the very way we live our lives – from identity to intellectual property to voting.

Dr Catherine Mulligan, associate director at London’s Imperial College Centre for Cryptocurrency Research and Engineering put it well recently when she said: “Blockchain has huge potential in a wide range of industries. We advise companies that they should assess it – without necessarily recommending that they use it,” said Mulligan, describing the new technology as “a very interdisciplinary subject affecting a variety of different industries”.

In financial services many have recognised the potential of distributed ledger technology with the Australian Stock Exchange moving towards using blockchain in the derivatives market and the consortium of banks headed by fintech startup R3 exploring the potential of distributed ledger technologies in the capital markets.

The potential of blockchain sliced numerous different ways during conversations at Tech Open Air (TOA) in Berlin this month, where the topic was a core thread running through the three-day conference.

As the conversation grows around blockchain, however, so too is the demand for education, explanation and information about precisely how it works and what it can be applied to.

That was very much in evidence at TOA, with panels on the topic attracting massive attendance and oversubscribed sessions pointing to a big appetite for information – especially the introductory panel on ‘blockchain for beginners’ with attendees spilling out of the doors and into the corridors to catch the conversations taking place.

At a conference not just dedicated to finance, the popularity of the talks points to growing acknowledgment that blockchain’s relevance, but also a gaping knowledge gap that needs to be filled before its potential can be realised.

tech open air blockchain

Paywalls, micro-payments & smart contracts

One session at TOA focused purely on smart contracts. At a simple level, a smart contract is a self-executing or automated contract/action/agreement between parties that is stored on the blockchain. The potential for the application of this technology in financial services is expected to massively transform the industry when deployed at scale.

The first steps are already being taken by forward-thinking outriders in the banking sector: earlier this year Barclays demoed a smart contract prototype combining legal agreements and business logic to make financial trades. The Barclays “Smart Contract Templates” prototype was also the first public demo applying R3 consortium’s distributed ledger platform, which is called Corda.

Speaking at the conference, Fabian Vogelsteller from the Ethereum Project also highlighted some of the “low hanging fruit” for this technology.  He said things like enabling micro payments and paywalls for readers to pay per page view on websites rather than, say, paying a monthly subscription to a magazine are good examples of applications.

Vogelsteller also said that in the next five years we will see the emergence of an “internet of blockchains”. He says that blockchains will be created around specific verticals or needs, such as industries as well as private blockchains – for example within companies.

tech open air blockchain

Knowledge gap

For now, the financial industry appears to be separating into two camps globally: those that are trying to understand what blockchain could mean for their business and those that are not.

A recent report from Pegasystems and Cognizant, undertaken by Marketforce claims more than a third of financial services organisations globally do not know what blockchain is while two thirds of those familiar with the technology believe it’s the biggest technological innovation since the internet for finance, according to new research.

Pegasystems director and industry principal of financial services Graham Lloyd says that while many are still working out whether this impact will be positive or negative, there’s no time for complacency.

“For many, the jury is still out on whether or not blockchain will be a force for good or not,” says Lloyd. However, we do know there’s no longer room to be complacent about such a potentially significant source of disruption.

“Banks and insurers must prepare themselves for the day when they might have to manage blockchain-stored customer data – whether it be their personal information, details of their assets, or even real-time data from virtual currencies. He warns that financial institutions need to be prepared to handle blockchain data belonging to their customers in the future or risk getting left behind.

With 35% of those polled saying they have “never heard” of blockchain and even 23% of those who have heard of it saying they don’t understand the technology, it’s clear the industry needs education.

A new identity

Another speaker at TOA was Greg McMullen, chief policy officer at BigchainDB and director at its recently-launched IPDB (Inter-planetary Database) Foundation.

The idea behind the database is that it offers decentralised control, universal accessibility and strong governance for anyone anywhere in the world. It will also enable the creation and trading of digital assets. It is supposed to resurrect the dream of the decentralised net that the early days of the internet promised.

Currently in the internal testing phase, he says that applications built on top of IPDB could include financial technology, intellectual property, identity and logistics.

“The internet has become decentralised,” says McMullen. Instead of the promise of  a decentralised web, it is now locked up in silos or “walled gardens” which then control everything from things we create to financial information.

A better internet, McMullen suggests, would see people owning their own data and having the power to decide what and how it is used. Meanwhile the definition of identity would not be ascribe to a library card, Facebook account or government ID, but would exist in a format that would enable you to control your own identity and let people trust you when you say who you say you are.

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