Every now and again, a new technology emerges that promises to significantly disrupt the norms which underpin the way industries—and society at large—are organised. The telegraph was one; the internet another; and now blockchain is being mooted as another game-changing technology.
Industry, governments and academics are all speculating on the ways in which blockchain could revolutionise everything from finance to the music industry. Just this year, the UK government identified blockchain as one of the key technologies that are integral to the UK’s Digital Strategy and the European Parliament published a report on “How blockchain technology could change our lives.” The numbers speak for themselves: £1bn was invested globally in blockchain start-ups in 2016.
Recent attention has led to a fair question from those who have heard about the technology’s capabilities, but are unsure about how blockchain works: should the hype be believed? The answer is basically yes—but some caution is sensible.
Blockchain acts as an online ledger to record, verify and manage information. So far, so ordinary. However, rather than all the information being kept in one place as you might expect, the database is shared over multiple different locations and networks. Information is captured in digital blocks which form a sort of encrypted digital chain, growing as new information is added over time. Hence the name: “blockchain.”
In theory, any information added is unchangeable, secure and preserved for the life of the ledger—allowing for secure information sharing without the need for a trusted central broker. It could therefore potentially serve as an alternative way of storing and securing information on a large scale.
Blockchain is already helping people to transfer important data and digital assets, including in the form of dedicated digital currency, such as Bitcoin. Digital representation of real-world assets, such as land titles and diamonds, and other things, like votes in elections and health data, are also part of the picture.
Effectively, blockchain means that there is no central point to fail or central database to hack. The big strength of this approach is the fact that data cannot be easily altered after being recorded on the blockchain. In practical terms, this can provide a clear and real-time audit trail, reducing the chances of fraud.
Given these potential strengths, the rate and extent of blockchain adoption across different sectors are likely to be of keen interest to policymakers.
From an industry perspective, the evidence on the sector-specific potential of blockchain varies. However, the technology does have the potential to be of particular use in certain sectors which rely on careful recordkeeping and management of secure transactions.
Financial services, tempted by the prospect of immediate financial transactions and the use of digital currencies, are the frontrunner in investing resources in pilot implementations, industry initiatives and proof-of-concept studies. However, other public and private organisations may also benefit. Blockchain’s use is also being explored in education, health, the creative industries, and the agriculture and food industries.
A prominent example of an active blockchain ledger is Everledger, a private initiative capitalising on the unchangeable nature of the blockchain record to introduce greater confidence to the diamond market by securely recording the attributes of individual stones. This prevents the re-entry to the supply chain of stolen diamonds with false documentation.
Despite the many different opportunities, challenges around the wider adoption of blockchain remain. It is still an immature technology, which means we don’t yet fully understand it. This lack of clarity is likely to delay its adoption by businesses.
There may also be a high up-front cost to firms from the initial implementation of blockchain, as existing backroom processes are overhauled or adapted. One of the main expected benefits of blockchain is to facilitate easy transfers of information within and between organisations. As such, businesses may also see early adoption of some blockchain solutions as risky in the absence of existing industry interoperability standards.
Finally, there is uncertainty related to the way current regulatory frameworks would apply to blockchain—for example, those relating to data protection and business liability—and the regulatory frameworks that might yet be needed in the event of blockchain’s wider adoption across different sectors.
The number of possible uses for blockchain does justify the hype to a certain extent. However, many of these proposed uses remain untested, and so caution should be exercised in predicting the short- or long-term impacts. Regardless, one thing is clear: now is the time for policymakers and industry to take note and find out what blockchain could offer.
-Salil Gunashekar, Advait Deshpande, Katherine Stewart