“Blockchain has huge potential in a wide range of industries,” says Dr Catherine Mulligan, associate director at London’s Imperial College Centre for Cryptocurrency Research and Engineering. “We advise companies that they should assess it – without necessarily recommending that they use it.”
Dr Mulligan, a computer scientist and economist, believes that blockchain combines the two disciplines. A guest speaker at GTNews’s recent Treasury Innovation Forum, she has been in her current post since the Centre was set up in 2013 and describes the new technology as “a very interdisciplinary subject affecting a variety of different industries”.
Noting that blockchain has swiftly developed from being just a theory – it has now attracted venture capital investment in excess of US$1bn – she invited her audience to get hold of a Bitcoin wallet and actually put it to the test. “Blockchain technology is a disruptive platform designed to facilitate the exchange of value,” she added. “It gets rid of the middleman so, for example, if I use it to sell my house I can dispose of the need for a real estate agent.”
So while blockchain has been instrumental in establishing Bitcoin as the first truly international, borderless currency, its further development is increasingly less dependent on Bitcoin’s continued success. The establishment of the public blockchain-based platform Ethereum has already expanded the Bitcoin concept by enabling users to create contracts.
In the financial services arena, many have been swift to recognise the potential of distributed ledger technology. The Australian Stock Exchange (ASX) is already moving towards using blockchain in the derivatives market. Among other blockchain initiatives designed for the financial services industry – aka permissioned blockchain – are:
• The Bank of England (BoE), which earlier this year indicated that it would assess the impact of distributed ledgers as part of a planned modernisation of the UK’s settlement system.
• The steadily growing consortium of banks headed by fintech R3 that is exploring the potential of distributed ledger technologies (DLTs) in the capital markets.
• The US NASDAQ stock market, which developed the Linq blockchain ledger.
• The Hyperledger Project, a collaborative, cross-industry initiative launched last December and led by the Linux Foundation to advance blockchain technology, which has been joined this year by IBM and Intel.
• The state of Delaware, where more than half of all publicly traded US companies are incorporated, which launched a blockchain initiative in April this year.
The significance of blockchain technology is in its ability to allow parties with common interests to create a permanent, unchangeable and transferable transaction. “Trust is created by not trusting anybody,” added Mulligan. Distributed ledger provides an immutable record of all transactions within a network, which prevents infiltration by hackers, provides protection against fraud and censorship and allows for trust without the use of third parties.
Each participant has a record of each transaction and by applying so-called “consensus protocol” all of them agrees the current state of the ledger; thereby preventing double-spend and also fraudulent transactions.
Moving beyond finance
Among the potential developments from blockchain, Dr Mulligan highlighted the following:
• Decentralised asset ownership and management.
• Smart contracts.
• Decentralised autonomous corporations-meaning entities that employ no actual people.
• Peer-to-peer (P2P) commerce and finance.
• State-backed cryptocurrencies.
• Contract negotiation, monitoring and execution.
• Low-friction global remittances.
• Express agreements, for negotiating and verifying contracts swiftly and easily
There is considerable potential for blockchain transactions that are non-financial. One example is Gradbase, used to verify academic qualifications and detect a curriculum vitae that is fraudulent. By loading the data onto blockchain, an employer is able to confirm that a prospective employee actually holds the degree he/she claims.
Estonia-based Guardtime, established in 2007, has pioneered the use of blockchain to protect critical infrastructure, such as nuclear power stations and flood defence mechanisms. The technology can also be used by retailers to verify the integrity of food supply chains and eliminate incidents such as the use of horsemeat in products that made headlines in 2013.
Cryptography, or proof of work, creates trust said Dr Mulligan. “Individuals have attempted to commit fraud via blockchain, but every single transaction can be viewed on the network as it happens in real time,” she said. “So if I wanted to carry out a malicious transaction, I would need to convince all the other nodes within the network, which would be a daunting challenge.”
Asked who have been the biggest respective users of Bitcoin and blockchain technology, Dr Mulligan that the anonymity of transactions makes it difficult to know; however the majority of Bitcoin miners – those who add transaction records to the ledger – have been in China, while the majority of investment has been concentrated on a small district of San Francisco.
As for the future “we’ll see blockchain adopted by the banking industry’ government initiatives and the increasing use of P2P cryptocurrencies-such as an existing scheme in Finland, which provides cryptocurrency rewards to individuals for work that they undertake in their neighbourhood. At the same time, bring fiat currencies and cryptocurrencies closer together will present a future challenge.
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