John Hammond, CCO Currencycloud
The future of Blockchain, the technology that underpins Bitcoin, has been frantically predicted by the technology and finance industries for a while. But over the last couple of years some interesting developments have taken place that have shifted the debate to focus more on blockchain as an underlying technology rather than only on the specific use case of cryptocurrency.
As the latest World Economic Forum Report explains, ‘the technology behind bitcoin could profoundly alter the way banks do business worldwide, lowering their operating costs and making financial services securer and more accessible’.
It’s an exciting time for blockchain. It has become one of the biggest buzzwords in the financial industry and its move from ‘hype’ towards more practical testing and experimentation, could lead to banks finding modern ways to resolve old problems.
The cryptocurrency use-case
The blockchain is the main technical innovation behind Bitcoin, a key element is that is serves as the public ledger of the virtual currency’s transactions. By transferring trust for authentication from a centralised organisation into the network, a fundamental shift is created It is therefore understandable that speculation regarding the future blockchain is highly contentious when considered on its impact on payments.
If developed correctly, blockchain has the potential to remove legacy third parties and make peer-to-peer transfers more convenient. However, the reality is that at this point, no one has yet quite figured out how to get liquidity into an open system and build up enough trust for this to be the chosen method of transferring value around the globe.
Taking the risk out of blockchain
A smart way of helping build confidence around blockchain would be to first prove how it can effectively distribute other forms of data at a massive scale; data which is less high risk than payments. A perfect example of this is the property industry. In this context, blockchain can be used to aggregate the individual processes required to buy a house. This would add value by removing the manual processes involved in scouring a database to run necessary building checks, and help to build standard sequences or smart contracts. In turn it would bring transparency to what is currently an opaque process and ensure place the buyer and seller at the heart of the transaction, rather than those facilitating the transaction.
The encrypted secure distributed ledger would hold a public record of everything, as a single source of verifiable data. Once trust is established and the correct sequence of activities and checks have been completed, this could also eventually include the transfer of the payment for the property.
Too many potential use-cases, blockchain needs focus
It is clear that there are already a number of areas for applying blockchain technologies beyond payments. Smart contracts and smart assets are a few examples.
From a legal standpoint, once something is recorded on a shared ledger, it is irrefutable digital proof that the action took place at a particular time, on a particular date, between two counterparties. This has the potential to become an invaluable tool for solicitors, barristers and litigators to keep track of the various communication and activity trails involved in any exchange.
In the same way, the ability to publicly record a transaction with a clear date and time stamp becomes extremely valuable when thinking of assets, especially those in trade finance. If components bought and sold across global supply chains were recorded in near real-time on a shared ledger, we would be able to keep track of everything from where the asset is going to how it relates to other assets in the chain. A bank would then be able to derive significant value from turning this data into insight and information for corporate clients.
However, although blockchain has great potential in many different areas, we will need to select one specific use case, and test bed, before it can move into the mainstream. Testing the technology in real-world scenarios and at scale will be critical for its validation, and allow the next level of trust to be built.