Harnessing the potential of blockchain
The potential of the technology is steadily being realised, but there remain several regulatory and standards challenges that must be addressed in order to maximise the benefits.
The potential of the technology is steadily being realised, but there remain several regulatory and standards challenges that must be addressed in order to maximise the benefits.
Modern technology now allows people to communicate directly. From emails to voice calls, digital services help individuals communicate and maintain trust across the globe. But when it comes to money, people have to trust and go through a third party to complete a transaction.
Growth of Bitcoin
To combat this, the virtual currency Bitcoin and its supporting technology, blockchain, were designed to operate very differently from other currency systems. There would be no ‘Central Bank’, no interference or control from governments or financial corporates, and the system would be controlled, processed and managed by pretty much anybody who wanted to be involved.
Six years later on and Bitcoin has grown massively, spawned many imitators and led to a huge development of associated technology. Blockchain technology has a number of significant benefits compared to traditional technologies:
The downside
At the same time, a number of the ideals have failed. Bitcoin is now effectively controlled by a small group of powerful ‘Bitcoin mining’ consortiums based in China, and its rapid expansion has outgrown its original design. Consensus on the way forward has to be marred by conflicting interests over influence, security, income generated and ideology.
Blockchain was conceived with high ideals: no centralisation, no individual control, and most importantly, a pure, immutable record of the historical truth, protected by algorithms, encryption and distribution of the records amongst the masses. Once again in the wild world of innovation outside regulation and compliance, it too has come unstuck.
Following on from a targeted theft in June 2016 of US$50m of ‘Ether’- another digital currency like Bitcoin – when its Decentralised Autonomous Organisation (DAO) was hacked the founders of the currency decided to ‘hard-fork’ the underlying blockchain; effectively rolling back the transactions until before the theft and re-writing history – just what the blockchain was designed to prevent.
Once again this has caused a major division between the key stakeholders of Ether; some arguing that the blockchain should have remained as it was and the criminals dealt with in a more conventional way. This contingent has now split and formed its own ‘Ether Classic’ digital currency.
As the blockchain has become more interesting in the corporate and institutional world, these problems have been put into sharp focus – before any more failures have occurred. There are still various obstacles to overcome:
Future work with blockchain
As the commercial world begins to experiment with blockchain, consortium-only private blockchains are expected to become the norm; especially in financial services. This is for a number of reasons, including manageability, standards definition, regulation and compliance – and of course to prevent fraud.
As consortiums increase in size and the trade between themselves they typically need a central function, supported by all the players. This central function needs to be responsible and accountable, to manage the way forward and to provide some of the associated operations.
With the use of blockchain for regulated financial services continuing to rise, the industry will only reduce some of the technology’s perceived original value, and it will be implemented in a more evolutionary rather than the expected revolutionary way. It will still, however, reduce transaction times, costs, complexities and risks, and almost certainly enable new business models. As such, now is the time for organisations to start running blockchain pilots.