Imagine a giant network that can track transactions, ownership, and value securely, where activities can be verified and updated by all participants. In a nutshell, this is blockchain: a digital, distributed ledger system in which identical copies are controlled by multiple participants.
Any of the parties involved can review entries that have been submitted, but users can only update a blockchain by the consensus of a majority of the participants. Once information has been entered into the blockchain, information can never be erased, providing a permanent record for tracking transactions.
Although current use cases are limited, there is tremendous potential for using blockchain in multiple industries, with financial services leading the way. “Blockchain is infinitely more secure than any platforms that we have today,” said Don Tapscott, Digital Strategist and CEO of The Tapscott Group.
Tapscott, arguably the world’s leading authority on the digital age and co-author of Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, said that blockchain represents the second era of the Internet – or what he refers to as “an Internet of value.”
Blockchain offers multiple benefits to the financial services industry. For global payments, blockchain can enable near real-time point-to-point transfer of funds between financial companies, thereby accelerating the settlement process. For trade finance, blockchain enables real-time multi-party tracking and management of letters of credit and faster automated settlement than traditional processes.
According to an August 2016 report conducted by the World Economic Forum, blockchain offers a prime opportunity for banks to lower their operating costs and make financial services more secure and more accessible. Eighty percent of banks surveyed expect to initiate distributed ledger technology (DLT) projects in 2017 while more than 90 central banks around the world are engaged in DLT discussions.
Meanwhile, more than 2,500 patents related to blockchain in the financial services industry have been filed over the past 3 years.
Blockchain’s benefits aren’t restricted to financial services. Other industries where blockchain usage could take off include music, car leasing and sales, art, insurance, real estate, academia, energy, and healthcare:
- A blockchain initiative underway in the music industry called Ujo Music is exploring the potential for providing a shared infrastructure for music fans to access all types of online music services that have historically been walled-off and disconnected from one another. Ujo Music’s blockchain would also provide a means of cataloging which artists have written specific songs.
- Everledger is a distributed ledger that’s used to confirm diamond certification and track transaction history.
- In the automotive industry, Visa and DocuSign have entered into a partnership to build a proof-of-concept blockchain-based system for car leasing that could potentially streamline the documentation process. A consumer selects the car they want to lease and the transaction as well as the insurance coverage is then entered into a blockchain ledger.
- Blockchain could dramatically simplify title search processes in the real estate industry. Ubitquity, an early entrant, is testing a platform for banks, title companies, and mortgage brokers that could improve the ability to track, record, and transfer land titles, property deeds, and other records, thus improving efficiency, reducing costs, and increasing transparency.
- Blockchains in the healthcare industry could enable physicians, hospitals, insurers, and other participants to share medical records and other data across their networks without compromising security. For its part, Philips Healthcare is doing exploratory research into potential use cases.
In addition to boosting efficiency, cost reduction, and trust through greater transparency and improved record-keeping, blockchain also offers the potential to reduce cyber security risks by delivering more secure identity authentication.
There are some challenges on the road ahead. Industry experts point to the large amounts of computing resources that will be required to power large blockchain networks. Meanwhile, there will be integration issues involving changes to or the replacement of existing systems.
Still, with a variety of potential applications across industries, forward-thinking CIOs have an opportunity to position themselves as blockchain facilitators and help drive new value for the enterprise.
- Blockchain is a digital, distributed ledger that can track transactions, ownership, and value more securely than existing systems.
- Blockchain offers multiple benefits to participants in financial services, healthcare, real estate, and other industries by improving the efficiency and transparency of transactions and reducing costs.
- With numerous potential applications across industries, forward-thinking CIOs have an opportunity to position themselves as blockchain facilitators and drive new value for the enterprise.