(Note: This is the first in a series of posts dedicated to the topic of blockchain technology.)
There’s a new kid on the block of disruptive technology. Blockchain. A day doesn’t go by that you can’t find numerous articles about it. Topics range from how JP Morgan is making significant investments in exploring the technology, to the Republican GOP using blockchain to allow online voting in the recent Utah caucus.
It’s definitely a hot topic of discussion. At times it sounds like blockchain is replacing cloud in discussions as the technology panacea that will solve all problems. On the flip side, one of the first statements I invariably hear when blockchain enters the conversation with clients is, “We’re not interested in Bitcoin.” For many, the terms blockchain and Bitcoin are synonymous.
Blockchain ≠ Bitcoin!
In a recent weekend tweetchat (#CIOChat hosted by Myles Suer, a business strategist at Informatica), blockchain was the topic of discussion. One of the threads in the chat centered on the challenge caused by the blockchain/Bitcoin association. Ryan Fay, CIO at ACI Specialty Benefits said it best, “I can’t wait to start a conversation about blockchain and not spend an hour talking about Bitcoin.” This reflected the viewpoint of many in the chat.
The connection is understandable. If you do a Google search on blockchain, the top results inevitably pair the terms “blockchain” and “Bitcoin.” Blockchain technology originated in the establishment of Bitcoin. It enables digital currencies like Bitcoin to work.
A colleague of mine, Zach Slayton (VP of Digital Solutions at Collaborative Consulting) gave the analogy of fish and water. A fish (Bitcoin) needs water (blockchain) to survive. But water (blockchain) does not need the fish (Bitcoin). So while Bitcoin needs blockchain to work, blockchain doesn’t need Bitcoin to provide value.
(I’m not going to attempt to discuss the pros and cons of Bitcoin here. Those conversations can be almost as emotional as political discussions—and voluminous enough to fill books.)
What exactly is blockchain?
In simple terms, blockchain is a digital ledger. You can think of it as a spreadsheet. The blockchain ledger comprises a constantly growing list of transactions called “blocks”—all of which are sequentially connected. Each block has a link to the previous one in the list.
Once a block is in the chain it can’t be removed, so it becomes part of a permanent database containing all the transactions that have occurred since its inception.
One of the more interesting features about blockchain technology is that there’s no central authority or single source of the ledger. Which means it exists on every node that’s associated with it. Yes, every node has its own complete copy of the blockchain. As new blocks are added, they’re also received by every node that participates. Distributed consensus and trust ensures the integrity of the system.
Instead of Bitcoin, think in terms of assets
If you look at blockchain through the lens of Bitcoin (or for that matter, cryptocurrency in general), it can provide a very limited view of blockchain’s business value and usefulness. If instead, we think of it in relation to assets of all kinds, we see a landscape of nearly boundless potential.
- Blockchain 1.0 – Currencies. This includes currency transfers, remittances, and digital payment systems. This is the area most of us are familiar with as it is the territory of Bitcoin and other cryptocurrencies.
- Blockchain 2.0 – Contracts. This extends blockchain into financial and marketplace applications. Assets include items such as bonds, stocks, loans, titles, and anything that has an implied agreement or contract.
- Blockchain 3.0 – Organizing Activity. This takes blockchain out of the financial space and into areas such as education, government, health, and art. In these areas, asset types may be physical, digital, or human in nature.
In the second two categories, blockchain has far more potential than Bitcoin. And these applications are starting to garner significant interest throughout various industries.
Blockchain 2.0: Contracts
The potential benefits (and disruption) presented by blockchain in the financial services industry has not gone unnoticed. As I mentioned at the beginning, JP Morgan is making significant investments in exploring blockchain. And many in the financial services industry are starting to take a serious look at block chain technology and its potential impact.
- Oliver Bussmann, CIO of UBS says that blockchain technology could “pare transaction processing time from days to minutes.”
- Visa, Citi, and Nasdaq have invested $30M in the blockchain startup com.
- DTCC (Depository Trust & Clearhouse Corp.), recently held a symposium on blockchain titled, “Embracing the Disruption.” (DTCC acts as the trusted third-party clearing house for settling a majority of the securities transactions in the United States. Adoption of blockchain in the securities arena could cause a huge disruptive impact to their business model.)
- In a recent article in Fortune Magazine, Christopher Giancarlo, a commissioner of the Commodity Futures Trading Commission expressed the view that blockchain could have helped save Lehman Bros. He said, “If an accurate [blockchain] record of all of Lehman’s transactions had been available in 2008, then Lehman’s prudential regulators could have used data-mining tools, smart contracts, and other analytical applications to recognize anomalies. Regulators could have reacted sooner to Lehman’s deteriorating credit-worthiness.”
It is worth noting that Bitcoin has no place in any of those discussions. This is purely about leveraging the technological benefits blockchain may provide to solve real-world business issues in the financial services sector.
Blockchain 3.0: Organized activity
Outside of the financial arena , blockchain could be used in some very out-of-the-box scenarios that one might not consider at first. As noted earlier, the use of blockchain to enable online voting during Utah’s recent GOP primary is just one example.
This application of the technology clearly demonstrates the concept of distributed ownership. When I create my “vote asset” and it’s placed on the chain, I don’t own the chain but I do own my asset, which is my vote—and also a block in the chain. So every voter owns a block in the chain. These blocks become permanent records of each individual’s assets, and are immutably validated by consensus on the chain.
With that concept in mind, it’s exciting to think about blockchain’s potential in sectors and industries like government, education, and healthcare—just to name a few.
- In Estonia, the government is using blockchain to secure over 1 million electronic health records (EHR). It’s important to remember that patients own their individual EHR assets, the security and integrity of which are maintained within the blockchain. So rather than calling and relying on providers for record transferals, patients can transfer records themselves through the blockchain.
- The United Kingdom’s chief scientific advisor recently published a report entitled “Distributed Ledger Technology—Beyond Blockchain.” In it, he states that the technology “can revolutionize services, both in government and the private sector.”
- During the weekend #CIOChat tweetchat I mentioned earlier, the topic of blockchain’s potentially disruptive impact on education produced a lengthy chat that continued well beyond the weekend. Digital strategy advisor Stephen diFilipo, (Digital Strategy Advisor) Peter Salvitti (CTO, Boston College), and Joanna Young (CIO, Michigan State University) all raised points of disruption and impact including:
- Proof of learning and achievements
- Credentials validation
- Transcript verification
- The concept of micro-learning and micro-credentials
- Proof of learning and achievements
- And in the world of the Internet of Things (IoT), IBM and Samsung jointly developed a proof of concept demonstrating a decentralized IoT telemetry system powered by blockchain technology.
We have miles to go and promises to keep
The great promise of blockchain extends far beyond its role as a platform for the successful operation of Bitcoin and other cryptocurrencies. And yet, for some applications under consideration, technological challenges including performance and scalability will need to be addressed.
As with any technology, blockchain is a tool, not a destination. Ultimately, as technologists, our job is to help the business achieve its goals—and reach its destination—by leveraging tools that provide business value.
I count having blockchain in our toolbox as a net positive. Because as I’ve illustrated above, it’s so much more than Bitcoin. And I’m confident that as we progress forward, that association will slowly fade away.