How blockchain is likely to transform IT and business
The technology underpinning the well-known cryptocurrency, Bitcoin, is really the star of the show. Here's why Blockchain will almost certainly lead to a digital transparency and trust revolution near you.
Despite major up and downs throughout its occasionally turbulent six year lifetime, Bitcoin has managed to get farther than just about any other alternative currency, grabbing the interest of VC investors and an actual investors alike. About 14 million Bitcoins have been digitally 'mined' so far, leading to a total market capitalization of over $4 billion U.S. dollars. Not a lot in the big scheme of things, but an impressive start.
Certainly, the features of the so-called cryptocurrency itself are inherently intriguing: Anyone can create new Bitcoins, it's not centrally controlled by any government or traditional authority, it's completely transparent to all participants, and is inherently safe, as long as one takes adequate security precautions.
No matter where you fall on the opinion spectrum on Bitcoin -- many think it's a brilliant new digital model that puts control of the financial system directly into the hands of the public, while others are worried it's inherently unstable and a ponzi scheme -- it's come to be understood that the underlying core technology is what really makes cryptocurrencies like Bitcoin stand out.
Known as blockchain, the underpinning technology is a networked approach to making digital currency completely open, decentralized, and very difficult to hack, steal, or counterfeit.
Blockchain: Digital trust via radical openness, many copies of truth
The manner in which blockchain works is simple: Blockchain supports a highly distributed master list of all currency currently outstanding. It's validated through anonymous consensus -- using a very strict set of technical rules -- on a networked public ledger, a full and exhaustively complete copy of which is held by every entity holding Bitcoins around the world.
The key to the whole approach is surprisingly simple: If a Bitcoin being proffered isn't in the blockchain, it's not valid, and everyone agrees it doesn't exist or is fraudulent. Transactions are logged in perpetuity, and everyone has a copy of every single transaction that's ever taken place in a cryptographically sealed chain, ensuring documentation of not only the genesis of the Bitcoin itself, but all past and current ownership.
It's like having one massive digital bank ledger, one that's big enough to hold every single transaction that will ever occur, and which everyone agrees is the final record on what currency exists and who holds it.
Because everyone has a copy of the blockchain, if for instance someone tries to alter it to claim ownership of currency that isn't really theirs, the discrepancy is immediately obvious to every other user of the cryptocurrency. It's a simple yet powerful concept, and because of what it can enable, an important one.
The significance of blockchain was recognized early on, but like most technology, it took a while for the broader market to understand what a big leap forward it was in creating a workable model of total network transparency that fosters deep mutual trust of a system which has no 'owner.' This is why discussions of blockchain have created so much interest recently in the financial world, with sober voices now saying blockchain has become a 'big opportunity' for accounting and finance.
Blockchain moves into the large enterprise
They say imitation is the sincerest form of flattery, and so it's been interesting to watch the latest announcement this week from a highly-respected financial firm like Deutsche Bank, as they begin testing blockchain approaches to improve "enforcement and clearing of derivatives contracts, know-your-customer and anti-money laundering registries and surveillance, and securities asset servicing." In short, Bitcoin technology has moved into the big leagues.
Deutsche Bank joins well-known organizations like CME Group, BNP Paribas, and UBS in investigating how blockchain technologies can create shared environments with complete transparency and subsequent trust to create instruments like 'smart bonds' or reducing the overhead of increasingly expensive 'post-trade processes.' Even Deloitte is now using blockchain in trials for client auditing.
But the implications for blockchain go far beyond the financial world. Almost any process that involves the outcomes of shared transactions can be improved by what blockchain brings to the table: A highly theft and tamper resistant model in which all the information about what has happened and what is happening is contained entirely with a closed-system which everyone can keep and observe. The record cannot be lost or corrupted due to everyone having a copy of the total transaction chain.
'Trust but verify' has long been the mantra of business. Now the blockchain turn this into 'trust because you can always 100% verify.'
Uses for Blockchain in the enterprise
The implications for the enterprise are profound, and run the gamut from visionary to perhaps a bit concerning. It is possible -- even likely -- you will soon encounter blockchain as the underlying technology in the following types of business activities:
Smart property. The overhead of managing the official records for ownership of objects smaller than cars or houses hasn't been worth the trouble, until now. Blockchain can track the ownership and exchange of billions of objects in our businesses and households, identifying them in the case of theft, ensuring fair transfer during purchasing, while also making everything easier to amortize, tax, and otherwise track.
Next-generation copyright and IP. Use a blockchain approach to claim the intellectual property of a business or person as their own and set its rules for their use. Anywhere that work goes, when it is used, its use is recorded, and payments triggered. Monegraph is a good example of this already operating today.
Digital contract management. While services like Docusign have taken a lot of the friction out of paper agreements already, the next step is to make contracts -- and all the attendant changes to them, modifications of parties, and extensions, etc -- all part of a third party blockchain that ensures everyone agrees what was done and when, which can then be used as unforgeable, indisputable evidence in arbitration and court.
Employment and work records. As the economy tends towards more freelancing, e-lancing, and on-demand types of work -- and which has always been the case with contractors -- a blockchain can do what LinkedIn can't: Ensure that is a clear chain of workplace/job documentation, ideally facing two ways in terms of feedback, of work history that can be verified.
Given the versatility of blockchain, this list is just the very early beginning. The uses for blockchain has been considered or actively implemented for already continues to grow in leaps and bounds. And like almost any promising technology, it'll inevitably be shoehorned into functions that aren't always the best fit, and no doubt the hype cycle will go up on an down over the next few years.
Yet blockchain has already captured the imagination of thousands of entrepreneurs and innovators. We're already seeing blockchain consultants and system integrators begin to emerge in good numbers, always a sign that a new industry is beginning.
Blockchain will be a new digital foundation for business
Even in my work in collaboration, we can see parallels with blockchain. For example, we've seen an increasing move to engage in "working out loud" on enterprise social networks to build a shared sense of understanding and trust across an organization by logging our work and ideas out in the open for all to see. The blockchain model is really just one of radical openness, sharing, and trust over networks, a model that we're seeing recur over and over again.
It's not hard to realize that blockchain is a convergence of many related good ideas, some from open source ("everyone can participate", "with enough eyeballs, all bugs are scarce"), some from earlier but similar technologies like BitTorrent, and a bit from the DIY/maker ethic of self-sufficiency and self-determination.
Will most enterprises need a blockchain strategy? Not all of us. But if you're in an industry for which blockchain stands to revolutionize the fundamental process (such as financial services), it's time to start studying it closely as it's part of your digital transformation challenges. But for the rest of it, blockchain will just appear in the products and services we will consume.
What is important is a level of understanding of how it works, how to avail the organization to its advantages, and how to determine how it brings unique opportunities to the table for the business.