Blockchain is rapidly emerging as the next multi-billion euro digital technology market.
It is estimated that spending by organisations on Blockchain projects will exceed $1bn in 2017, which will make it one of the fastest developing digital technologies of all time.
It is receiving much attention due to its potential to disrupt and transform industry sectors. Blockchain has implications for multiple industry sectors including technology, financial services and healthcare. In financial services, institutions such as the Bank of England, Citibank, State Street and the NASDAQ are exploring its business potential. In healthcare, Blockchain technology has the potential to address issues regarding access, security, scalability and privacy of electronic medical records as well as enabling extensive healthcare research.
Over the last few months, there have been a number of notable Blockchain “Proof of Concept” initiatives. For example, on New Year’s Eve, NASDAQ enabled the first-ever private securities issuance on their new Blockchain technology platform, Nasdaq Linq. It is purported that Blockchain holds the potential for 99% reduced settlement time and risk exposure in capital markets.
Yet, among the broader business community, there remains a lack of understanding of the fundamental concepts of Blockchain, an issue which needs to be addressed if organisations are to benefit from its disruptive capabilities and develop transformative use cases.
Blockchain is a distributed ledger – a continuously growing list of records that are hardened against tampering and revision. Fundamentally, Blockchain can be seen as a peer-to-peer infrastructure where nodes in the network coordinate to play a vital role in processing transactions.
Bitcoin is the most widely known application which operates on Blockchain, with the technology being used as the public ledger of transactions for cryptocurrencies. However, it is in domains beyond cryptocurrencies that most disruptive and transformative use cases are emerging.
A Blockchain implementation consists of two parts:
1. Transactions: the actual data to be stored in the Blockchain. Participants create a transaction using the system (When someone initiates sending of cryptocurrency to another person for example).
2. Blocks: Blocks are records that confirm when and in what sequence certain transactions became journaled as a part of the Blockchain ledger. These blocks are created by parties known as “miners” who use software designed specifically to create blocks.
There are two key players in the network that play a role in executing Blockchain events:
(a) Miners: Masternodes that have the ability to create/process transactions
(b) Name nodes: Nodes that have the ability to store data within a chain
Miners create blocks that confirm and incorporate those transactions into the Blockchain.
Blockchain: Characteristics and Advantages
1. Decentralisation: Transparency and Resilience
Every node has a complete or partial copy of the Blockchain. This avoids the need to have a centralized database. This decentralised approach removes single point failure for transactions, potentially facilitating greater resilience and transparency.
2. Double spend solution: Trusted Third party not required
Cryptocurrencies, for example, use various time stamping schemes such as proof-of-work, to avoid the need for a trusted third party to timestamp transactions added to the Blockchain. This avoids anyone easily double-spending the currency and the need for a third party intermediary to validate business transactions. This can serve to reduce transaction costs, realise significant cost savings while enhancing transparency.
3. Other advantages of Blockchain include:
- The ability for a large number of nodes to converge on a single consensus of the most up-to-date version of a record.
- The ability for any node that creates a transaction to, after a certain period of time, determine with a reasonable level of certainty whether the transaction is valid and became final (i.e. that there were no conflicting transactions confirmed elsewhere in the Blockchain that would make the transaction invalid, such as the same currency units: “double-spend”).
- An automated form of resolution that ensures that conflicting transactions (such as two or more attempts to spend the same balance in different places) never become part of the confirmed record set.
Business Innovation: The potential to disrupt and transform industries.
There are still many issues to be overcome before Blockchain is widely adopted. Issues pertaining to network design (permissioned vs permissionless), scalability and business models need to be addressed. There is no “one size fits all” solution.
What does this all mean for business? Opportunity!
In addition to the areas widely being discussed in relation to Blockchain, including payments (cryptocurrency), fraud (Everledger) and trading (NASDAQ), some other domains where Blockchain technology can be applied in driving business innovation include:
1. Auditing: With a single set of transparent records, Blockchain has the ability to fundamentally change auditing processes worldwide.
2. Insurance: A single set of transparent records, for example relating to building certification, fire safety, engineers reports etc. could potentially transform the insurance industry.
3. Business Records: A single set of searchable records pertaining to company directorships, asset ownership, property transactions and judgements has the potential to completely transform practices within the banking and legal professions.
4. Healthcare: Smart health systems, with functionality to include admittance and validation of patient’s identity. Other potential use cases could include a universal ledger for medical research.
Therefore, Blockchain presents numerous business opportunities for organisation’s to innovate, disrupt and transform industry sectors. However, they need to act now towards ensuring that they are leading the digital transformation within their sectors.
Dr. Philip O’Reilly is a Senior Lecturer at University College Cork and is the Programme Director for the MBS in Digital Business.
Philip has delivered keynotes and workshops to numerous multinational companies and at leading practitioner events including the Banking & Payments Federation of Ireland National Conference.
He recently received the Stafford Beer Medal in recognition of the most outstanding contribution to the philosophy, theory and practice of Information Systems (IS) from the Operational Research (OR) Society at an Awards Ceremony.