There’s a new kid on the block of disruptive technology. Blockchain. A day doesn’t go by that you can’t find numerous articles about it. Topics range from how DTCC (Depository Trust & Clearing Corporation) is making significant investments in exploring the technology, to various government and political organizations investigating its potential to enable online voting. Blockchain is definitely a hot topic of discussion. At times, it sounds like blockchain is replacing cloud in discussions as the technology panacea that will solve all problems. On the flip side, one of the first statements I invariably hear when blockchain enters the conversation with clients is, “We’re not interested in Bitcoin.” For many, the terms blockchain and Bitcoin are synonymous.
Blockchain ≠ Bitcoin!
The connection is understandable. If you do a Google search on blockchain, the top results inevitably pair the terms “blockchain” and “Bitcoin.” Blockchain technology originated in the establishment of Bitcoin. It enables digital currencies like Bitcoin to work. This connection was starting to fade, but with the recent explosive growth in value of Bitcoin, with it reaching a valuation of $8,000 this week re-inserted it back into the conversation.
The reality is that blockchain is so much more than bitcoin. I look forward to a time when discussing blockchain I not longer have to disassociate it from bitcoin. A colleague of mine, gave the analogy of fish and water. A fish (Bitcoin) needs water (blockchain) to survive. But water (blockchain) does not need the fish (Bitcoin). So while Bitcoin needs blockchain to work, blockchain doesn’t need Bitcoin to provide value.
(I’m not going to attempt to discuss the pros and cons of Bitcoin or other cryptocurrencies here. Those conversations can be almost as emotional as political discussion—and voluminous enough to fill books.)
What exactly is blockchain?
In simple terms, blockchain is a digital ledger. You can think of it as a spreadsheet. The blockchain ledger comprises a constantly growing list of transactions called “blocks”—all of which are sequentially connected. Each block has a link to the previous one in the list.
Once a block is in the chain it can’t be removed, so it becomes part of a permanent database containing all the transactions that have occurred since its inception.
One of the more interesting features about blockchain technology is that there’s no central authority or single source of the ledger. Which means it exists on every node that’s associated with it. Yes, every node has its own complete copy of the blockchain. As new blocks are added, they’re also received by every node that participates. Distributed consensus and trust ensures the integrity of the system.
Instead of Bitcoin, think in terms of assets
If you look at blockchain through the lens of Bitcoin (or for that matter, cryptocurrency in general), it can provide a very limited view of blockchain’s business value and usefulness. If instead, we think of it in relation to assets of all kinds, we see a landscape of nearly boundless potential.
In her book, “Blockchain: Blueprint for a New Economy,” author Melanie Swan describes three categories of blockchain:
- Blockchain 1.0 – Currencies. This includes currency transfers, remittances, and digital payment systems. This is the area most of us are familiar with as it is the territory of Bitcoin and other cryptocurrencies.
- Blockchain 2.0 – Contracts. This extends blockchain into financial and marketplace applications. Assets include items such as bonds, stocks, loans, titles, and anything that has an implied agreement or contract.
- Blockchain 3.0 – Organizing Activity. This takes blockchain out of the financial space and into areas such as education, government, health, and art. In these areas, asset types may be physical, digital, or human in nature.
In the second two categories, blockchain has far more potential than Bitcoin. And these applications are garnering significant interest throughout various industries.
Blockchain 2.0: Contracts
The potential benefits (and disruption) presented by blockchain in the financial services industry has not gone unnoticed. As I mentioned at the beginning, DTCC is making significant investments in exploring blockchain. And many in the financial services industry are starting to take a serious look at block chain technology and its potential impact.
- Oliver Bussmann, CIO of UBS said 2 years ago that blockchain technology could “pare transaction processing time from days to minutes.” They continue to make significant investments in a partnership with IBM that recently had many other banks joining that effort.
- Last year, Mastercard announced it was ‘offering the ability to send money over a blockchain rather than by swiping a credit card’.
- Christopher Giancarlo, a commissioner of the Commodity Futures Trading Commission ‘sees a digital revolution coming for financial regulators, and he says blockchain technology is the key to protecting the government’s oversight of markets.’
It is worth noting that Bitcoin has no place in any of those discussions. This is purely about leveraging the technological benefits blockchain may provide to solve real-world business issues in the financial services sector.
Blockchain 3.0: Organized activity
Outside of the financial arena , blockchain could be used in some very out-of-the-box scenarios that one might not consider at first. As noted earlier, the use of blockchain to enable online voting is just one example.
This application of the technology clearly demonstrates the concept of distributed ownership. When I create my “vote asset” and it’s placed on the chain, I don’t own the chain but I do own my asset, which is my vote—and also a block in the chain. So every voter owns a block in the chain. These blocks become permanent records of each individual’s assets, and are immutably validated by consensus on the chain.
With that concept in mind, it’s exciting to think about blockchain’s potential in sectors and industries like government, education, and healthcare—just to name a few.
- In Estonia, the government is using blockchain to secure over 1 million electronic health records (EHR). It’s important to remember that patients own their individual EHR assets, the security and integrity of which are maintained within the blockchain. So rather than calling and relying on providers for record transferals, patients can transfer records themselves through the blockchain.
- Two years ago, The United Kingdom’s chief scientific advisor published a report entitled “Distributed Ledger Technology—Beyond Blockchain.” In it, he states that the technology “can revolutionize services, both in government and the private sector.” Based on this recommendation the UK Ministry of Justice is looking at using blockchain to help verify crime evidence.
- A variety of higher education institutions, including MIT & University of Texas are looking at blockchain to verify learning and microcredentials.
- And in the world of the Internet of Things (IoT), CISCO recently filed a patent application that utilizes blockchain for ‘device identity verification and anomaly detection’
We have miles to go and promises to keep
The great promise of blockchain extends far beyond its role as a platform for the successful operation of Bitcoin and other cryptocurrencies. And yet, for some applications under consideration, technological challenges including performance and scalability will need to be addressed.
As with any technology, blockchain is a tool, not a destination. Ultimately, as technologists, our job is to help the business achieve its goals—and reach its destination—by leveraging tools that provide business value.
I count having blockchain in our toolbox as a net positive. Because as I’ve illustrated above, it’s so much more than Bitcoin. And I’m confident that as we progress forward, that association will slowly fade away.