The disruptive potential of the blockchain and what it means for business
TMT group member David Goldstone talks to security, technology and business strategy expert Gilbert Verdian about his involvement in creating regulation around blockchain and its potential to transform the financial services industry.
Q: What is the journey towards crosssector adaptation of blockchain?
A: Blockchain has been in the experimental stage for the past two years. 2017 is becoming the inflection point when people stopped experimenting with blockchain and started to implement and test it in real world use cases. Private and public organisations are constantly looking at the disruptive benefits of technology and how they can apply this innovation in order to bring change to existing internal and external business processes. We can now find numerous blockchain use cases that have demonstrated the value of this technology. With many technological advancements we need proper governance and design to manage risk. Risks need to be managed in order to realise the full potential of any implementation.
Q: Which sectors and applications are most likely to benefit from this platform?
A: Versatility and the diverse application of blockchain mean we have seen benefits across numerous sectors and industries, with financial services and government receiving significant focus. The supply chain lends itself well to this technology. There was a recent use case in the farming sector, where from ‘farm to table’ the blockchain was able to cut out 20 of the steps it takes for a farmer to get paid. It reduced the process to three steps, with no delays in settling invoices.
The blockchain cuts out middlemen in complex processes and transactions and the reach of benefits can be significant. For example, the two billion people in the world with no bank account could get banking access through blockchain technology as it offers fewer barriers to entry. Quick and efficient onboarding of n w banking customers and their access to financial services would completely disrupt traditional banking onboarding methods.
Blockchain can verify banking identity much more quickly and easily than in the branch of a bank. Once an identity or person has been verified, any organisation can access that identity to save the duplication of time and effort of ID checks. Once an ID check is done everyone can use that as definitive confirmation.
Blockchain can give traditional areas of financial services greater efficiency and cost savings in existing operational processes. This can also span central banks and capital markets as well as the plethora of products and services wrapped around these organisations.
Q: How is the market addressing issues of standardisation?
A: Market forces traditionally allow innovators to create products and foster innovation. But based on past experience this is not always the best course of action due to the potential of technology lock-in. This in turn could make it difficult to migrate platforms in the future. I foresaw the potential challenges of this approach back in 2016 and proposed that the ISO create a Blockchain ISO Standard that will allow for interoperability, governance and security internationally in order to define a common model through a standard that will support organisations and allow them to benefit from future blockchain technologies.
35 countries and many organisations, including the European Commission, are involved in the Blockchain ISO Standard, which will take two to three years to create. A number of work streams are running which each address a different part of the standard, including: terminology; reference architecture, taxonomy and ontology; security and privacy; identity; smart contract; governance; and interoperability. The ISO standard will allow for the wide adoption of blockchain, allowing governments and regulators to endorse it, for organisations to adopt it and for citizens to benefit from it.
Q: What will be the barriers and challenges to growth and adoption?
A: The market is dispersed at the moment, so the challenge will be to herd everyone in the right direction. There are no barriers or parameters currently in place to enforce controlled adoption. In the UK this is being encouraged, including through technology partners in the ISO process. Partners that are part of the standardisation work such as Hyperledger (IBM) and R3 that are building blockchain technology can take progress, updates and thinking around the standard back into their organisations and products. The output will be that people building the technology will deliver solutions that are truly interoperable and compatible with the standard.
Q: What risks should organisations consider when thinking about implementing blockchain technology?
A: Contrary to what the media would have you believe, blockchain is not the panacea for everything. The key is being able to understand the real benefits of the technology, then look at existing business processes or use cases that make good candidates for blockchain. It’s only then through proper governance and risk management that one can then assess the tangible benefits and outcomes that organisations would like to achieve. Then add some Silicon Valley ‘fail fast’ methodology (try it and if it doesn’t work then park it) to prove use cases and proof of concepts. You would then be in a position to determine if this technology delivers benefits over the long term. Consideration needs to be given to operational, technological and financial benefits before applying common economics – in other words, will this provide a better return?