The noise surrounding blockchain has been tremendous. As traders, banks, governments and more look into how the technology can benefit them, will 2016 be the year blockchain finds its place in the world beyond bitcoin?
First popularised outside of computer science circles with the crypto-currency bitcoin, blockchain is now grabbing the attention of just about everyone, from financial services to government.
Startups are beginning to promise the world, and Fortune 500 companies are at least keeping a close eye on the concept.
Understandably, there’s plenty of confusion – just what does blockchain mean for business? What will and won’t it be used for, and will it live up to the hype?
Blockchain - the future: podcast discussion
Blockchain: How can it be used by businesses?
The wide range of uses for blockchain is now “a world away from bitcoin”, according to Lisa Moyle, head of financial services and payments at industry group techUK.
While the finance sector has been pushing the technology, there’s now the potential for applications across plenty of different sectors. (See also: Blockchain is set to take the tech world by storm - here's why)
That could include new forms of clearing and settlement, as well as supply-chain finance. And Everledger, for example, uses blockchain to guarantee the provenance of diamonds.
“The challenge is to test these use cases against the current regulatory framework and understand real-world viability in terms of cost, suitability and efficiency,” Moyle says.
Governments are exploring the potential for blockchain in running secure and cost-effective services. “Things like land registry, tax collection, or confirming the validity of government documents,” Moyle says.
Indeed, earlier this year Sir Mark Walport, Britain’s chief scientific adviser, recommended the National Health Service use a form of blockchain technology for its databases and record-keeping.
“It has the potential to redefine the relationship between government and the citizen in terms of data sharing, transparency and trust,” he said at the time.
Blockchain: A new system of record
As blockchain enables peer-to-peer transactions with a great deal of trust and transparency, the idea is it could prove useful for any industry where multiple parties require a common record – think payments, or insurance, where the internet of things and connected devices are playing a bigger role.
An example: IBM’s blockchain VP Jerry Cuomo imagines a world where you’re only liable for your car insurance when you’re on the road and driving.
By distributing information through a blockchain, it would be possible for all parties to agree exactly when a car was on the road. If a car had automatic parking software, the record created by blockchain could determine when the driver was in control, and when it was the software – using the record to identify who was liable at that time.
According to a recent report from Deloitte (PDF), there are three key characteristics to blockchain that make it a desirable technology across industry. First, it’s almost impossible to tinker with the blockchain without it being noticed, making fraud very difficult.
Blockchain can also make transactions irrevocable, increasing the accuracy of records as well as simplifying back-office processes.
And because it is digital, almost any document or asset can be expressed in code and then expressed in a ledger entry, Deloitte says, making the technology widely applicable.
Blockchain: Who is developing blockchain systems?
A number of initiatives have cropped up recently to help push blockchain into more mainstream usage. This typically means creating private networks for shared systems of records.
In September 2015, nine financial companies joined the R3 consortium to invest in blockchain in the finance sector: Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, JP Morgan, RBS, State Street, and UBS. Just two weeks later they were quickly joined by another 13 – turning the consortium into a who’s who of big financial interest – with Morgan Stanley, Deutsche Bank, HSBC and Societe Generale just some of the members.
Meanwhile, some financial heavy hitters like JP Morgan and Deutsche Borse Group, were joined with technology giants like Intel, Fujitsu, IBM and Hitachi in putting their collective muscle behind The Linux Foundation’s Hyperledger project. (See also: Why banks are betting on the blockchain - not bitcoin - to transform the financial sector)
Hyperledger intends to advance the blockchain project by setting open standards collaboratively, so a network of businesses can agree on using one, decentralised public ledger.
IBM, meanwhile, has launched its own blockchain-as-a-service – available to developers on the cloud so businesses can begin experimenting with use-cases with a fully configured blockchain available immediately. (See also: Blockchain needs Linux-style open community to succeed in the enterprise, says IBM CTO)
And that same Deloitte report highlights Ethereum – now available on the Microsoft Azure platform – which is a framework for supporting internet-of-things applications with transaction processing.
But we should be careful not to view blockchain as an all-fixing panacea.
IBM’s Jerry Cuomo believes there are people out there who are fundamentally misunderstanding the best uses for the technology.
“We sometimes get confused with the technology – for example we can use blockchain to replace a distributed database,” Cuomo says. “But that’s a terrible use of blockchain.”
“There are great databases out there; this is not one of those purposes. You wouldn’t apply a blockchain design pattern to solve a database problem.”
“Blockchain makes sense when you’re bringing businesses together with this consensus,” Cuomo says. “The technology is important, but without building out that business collaboration? It’s kind of missing the point.”
Despite the promise of the positive noise being made about blockchain, it's clearly still early days.
Real-world use-cases are emerging, but the technology is only beginning to find its feet. Both banks and vendors who are invested in blockchain seem to be adopting a wait-and-see approach while at the same time enthusing about the possibilities.
It may just be that the collaboration that’s so fundamental to the core of the technology is what drives its success, as businesses begin to network with one another – and begin to understand how the distributed ledger can help each of them.