PwC states(1), blockchain is posed to change how business is done.” In fact, according to PwC’s 2018 Blockchain Survey(4):
84% of executives say their organizations have at least some involvement in blockchain technology;
45% believe trust could delay adoption;
30% see China as a rising blockchain leader; and
28% say interoperability of systems is a key for success
Blockchain uses distributed ledger technology (DLT), a decentralized public recording of transactions, synchronized and shared across a network of independent computers (referred to as nodes). Each transaction is simultaneously recorded in the electronic ledger on each node in an append only format. This functions to support what ycombinator.com(2) describes as a consensus-finding algorithm, by which nodes may start out disagreeing on the contents of the most recent few blocks in the log, but eventually converge to a consensus, at least for relatively old blocks.
The World Bank(3) describes blockchain/DLT as the building blocks of “internet of value”, where “value” refers to any record of ownership of asset – such as land titles, money, security. It can also include ownership of specific information such as identity, health information and other personal data.
As the data is recorded on separate notes using a consensus-finding protocol, this obviates the need for a centralized coordinating entity to verify new data or changes to older blocks. According to PwC, as a distributed tamperproof ledger, blockchain not only cuts out the need for intermediaries, reduces costs and increases speed and reach; it also increases security of transactions and electronically transferred data, offering greater transparency and traceability for many business processes.
While DLT is set to transform the financial sector, it has the potential to transform other sectors such as manufacturing, government financial management systems and clean energy.
The World Bank envisages that DLT application will be incremental, likely replacing current manual and inefficient process and activities such as reference data maintenance in payment and settlement systems; trade finance; syndicated loans; tracking source of agricultural products and commodities, their subsequent sale or use as financing collateral.
Of the 600 executives across 15 territories in the PwC survey(4), the following industries are seen as leaders in developing blockchain today:
|Industrial products and manufacturing||12|
|Energy and utilities||12|
|Retail and consumer||4|
|Entertainment and media||1|
According to the World Bank(3), DLT could fundamentally change the financial sector, making it more efficient, resilient and reliable. Implementation of DLT can expand the net of the financial sector, providing greater efficiency and decreasing remittance costs while also facilitating access to finance for unbanked populations who are currently outside the traditional financial system.
PwC lists the following applications for blockchain: (1)
Smart contracts: allow for automated transactions based on specific catalysts such as predetermined conditions or triggering events. This opens up a second layer of value for blockchain use cases, while making it easier to regulate and enforce governance throughout the blockchain network.
Asset traceability: tracking goods and parts along the supply chain and throughout their life cycle which will impact on decisions and protocol relating to inventory management and repairs
Finance: automated, real-time, three-way matching and billing will accelerate settlement and reduce disputes and reconciliations; facilitation of seamless cross-border payments
Tax and customs: automating and streamlining compliance burdens by executing transactions precisely and reliably while automatically generating documentation
Payments, royalties and licensing: automating predetermined contract terms and expediting royalty payments and subscription revenue settlements, while increasing trust in customer data
Identity management: using blockchain to authenticate identity for credentials, identity, and loyalty rewards programme management
Digital currencies: blockchain as a facilitator of financial transactions using a decentralized currency that has no borders and eliminates the need for intermediaries
Records and contract management: using blockchain as a means of ensuring that contracts are executed according to the prescribed conditions and enabling consumers to share records across multiple entities while safeguarding data privacy.
Audit and compliance: opening up verification and validation of transactions through real-time assurance while providing additional transparency to stakeholders
The World Bank cites various issues which need to be resolved and addressed such as consumer protection, financial integrity concerns, speed of transactions, environmental footprint, legal, regulatory and technological issues that arise with the advent of a new technology.
Other issues which PwC(4) outlines are building confidence in the technology itself and the need to overcome the natural resistance to any emerging technology – with challenges and doubts existing around blockchain’s reliability, speed, security and scalability. Concerns regarding a lack of standardisation and the potential lack of interoperability with other blockchains also need to be addressed to expedite adoption of the technology together with providing avenues which facilitate coming to grips with DLT.
Despite these natural, initial stumbling blocks, the scope of DLT is vast. Gartner forecasts that blockchain will generate an annual business value of more than US $3 trillion by 2030. It’s possible to imagine that 10% to 20% of global economic infrastructure will be running on blockchain-based systems by that same year(4).
One thing is clear: DLT is changing all facets of business. As PwC says: Blockchain is here. What’s your next move?