Blockchain — related to bitcoin in particular — has been around since 2008. It has had its successes and crises. In 2017, Digital Trade China
was announced as a partnership between seven European banks to offer a trade finance platform via blockchain. This year also, Japan recognized virtual currencies officially. In addition, Switzerland will begin accepting tax payments in bitcoin starting January 2018.
It is undeniable that the technology has become a viable, accepted option, at least in the financial services field. But will it infiltrate other industries at a rapid pace?
What is blockchain?
• Trust between participants
• No third-party intermediaries
• Reduced risk of fraud and
• Effective regulatory compliance
• Long-term ROI, as costs go down
through widespread adoption
Blockchain is a live ledger of transactions between multiple participants. Initially developed for cryptocurrency, blockchain records the transaction of a “token,” arranged in data batches called “blocks” that use cryptographic validation to link themselves together. Each data block references and identifies the previous block using a “hash” function. In this way, the blocks form a chain that is strictly sequential and permanent. Once the transactions are recorded on the chain, they are impervious to alteration. Any attempt at breaking the chain by altering transactions is immediately flagged to all participants.
Blockchain is sometimes described as a mutual distributed ledger
(MDL). This concept of mutual distribution ensures trust among all participants. It signifies that the ledger is not maintained in a single location or managed by a single third-party that has full ownership. Instead, the ledger is distributed among all participants’ computers at the same time and in such a way that anybody with an interest can obtain a live copy of it. All participants have encrypted digital signatures, which allows transactions to be recorded in real time with immediate validation. Each transaction is immediately visible to all participants as it becomes part of the chain.
In 2013, the Ethereum blockchain platform took the leap from allowing only currency to allowing smart contracts
. Ethereum has its own digital currency – ethers – but the platform moved beyond this use to introduce the ability to include small logistical programs into ledgers – smart contracts. Smart contracts allow for the implementation of specific agreements between parties. One example might be requirements for maintaining medication at a certain temperature in a pharma supply chain. Through sensors that feed information to the blockchain, a pharma supply blockchain could automatically check and ensure compliance with a temperature requirement for shipments.
What blockchain is not…
• A database. Blockchain has poor
performance on data storage and
• A final software solution. Blockchain is
a software platform that needs
fully usable application and
customization. It cannot replace
many of your other software
What industries are using blockchain?
Blockchain has primarily been developed and is currently most widely used for financial transactions, in relation to bitcoin as a form of cryptocurrency. Nevertheless, the technology presents the opportunity of digitizing entire trade ecosystems and has attracted the attention of many other industries -- from manufacturing, to life sciences and energy -- as well as that of government agencies. Currently, blockchain spread of adoption and uses differ in the US and internationally.
According to the Financial Times
, banks are most likely to adopt blockchain for clearing and settlement, payments, trade finance, identity verification and syndicated loans.
Other industries considering blockchain include pharma companies that are exploring whether blockchain can constitute a viable solution for drug traceability, with the goal to combat drug counterfeiting worldwide.
Other industries can utilize blockchain as well; any industry where there is a supply chain can benefit from the use of blockchain. For example, incentivized by a regulatory change in the shipping industry, Marine Transport International adopted blockchain as a solution to connect all its supply chain participants, from ports, shipping lines, land-based haulers, to freight forwarders and other interested parties.
Energy has also joined the range of early adopters. Earlier in 2017, Australian energy company Power Ledger rolled out a system for a distributed energy trading system. Power Ledger wanted to encourage the widespread adoption of photovoltaic (PV) solar panels. For Australia, condos represent 35% of housing options. Blockchain offered a transaction platform and trading algorithm to track solar energy generation and use per condo, which was crucial to incentivizing condo owners to invest in clean energy.
Blockchain as a cultural driver
Grant Thornton’s partner in charge of the North East banking practice, Markus Veith
, shares his view of blockchain as a driver for cultural change. He believes that in a similar fashion to other revolutionary technologies — e.g. touch technology — blockchain will bring about a different way of doing things.
The exciting aspect of the technology is that, due to its trusted system of recording transactions, it eliminates intermediaries and automates settlements between participants. Veith gives the example of Circle
, a trading business dealing with cross-border currency. With a smartphone app, cross-border currency transfers can be done instantly and without any additional charges imposed by third parties. All Circle customers have to do is establish their identities on the blockchain. The rest is a fast, secure, and free transaction.
“It’s much more difficult to hack into a blockchain ledger than a traditional ledger in which you have one server,” observes Veith. “With a blockchain you have multiple servers and every server validates the blockchain. “If someone tries to hack a server or fake a transaction, all the others will kick it out.”
- Energy consumption. Blockchain requires a good amount of energy to keep the system up and running.
Solution: This aspect can be optimized in the future so that blockchain can become more energy efficient.
- High implementation cost. “You can have high initial costs to participate, especially from a computing power and energy consumption perspective, which could be a barrier,” notes Veith.
Solution: As blockchain is adopted by an entire business ecosystem, the costs for acquiring and implementing the technology will go down, leaving room for long-term ROI.
- Limited number of participants. Blockchain works as a partnership and the success of the adoption depends on who is already in the network and on the willingness of trade partners to make the investment in the technology.
Solution: So far, successful implementation projects are starting small and building up gradually to offset some of the shortcomings indicated above. In some countries, blockchain-as-a-service has showing up as a viable alternative in some countries too.
Blockchain is only at the beginning of its ascent as a revolutionary technology. In the US, its spread is limited to the top technology companies so far. For example, the middle market is shy regarding immediate adoption of the technology. Only 6% of 400 respondents, surveyed in the most recent NCMM research
, indicated that they have plans of investing in blockchain technology in the near future. Nevertheless, blockchain could be a game-changer. Companies of all sizes and industries need to watch for further developments and focus on the opportunities that the technology presents, rather than on its costs.
This piece is based on the Grant Thornton UK article “Why is blockchain technology gaining momentum?”
Partner, Financial Services
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