Is blockchain the answer to building transparency and trust?
Last week the first ever Global Blockchain Business Council was launched in Davos at an event hosted by Bitfury, a business designed to help companies “successfully digitize their assets and safely transact them over the internet – making the world safer, simpler and more efficient.”
The purpose of the council is to raise awareness in the global business community of the potential of this technology. While blockchain remains a nascent technology, the council’s creation caps a year in which blockchain has been widely recognized as a revolutionary platform to change the way transactions are made.
According to Alex and Don Tapscott, the authors of Blockchain revolution, “2016 was the year that many bank CEO’s woke up to both the threat and the opportunity of the blockchain. At a meeting of 50 CEO’s of the 50 largest banks in January 2016, most were skeptical. Now most are investigating how this technology might transform their companies and industry services.”
Bernhard Marr described blockchain in his recent Forbes article as “a distributed database, meaning that the storage devices for the database are not all connected to a common processor. It maintains a growing list of ordered records, called blocks. Each block has a time-stamp and a link to a previous block. Cryptography ensures that users can only edit the parts of the blockchain that they “own” by possessing the private keys necessary to write to the file. It also ensures that everyone’s copy of the distributed blockchain is kept in sync.”
Marr, like others, believes that blockchain will have wide-reaching implications, in financial services, government, health care, consumer products, manufacturing and other industries.
Growing awareness of blockchain is also the result of us living in a world in transition – from a model of business and society we know to one that still needs to be defined. We live in a world with a significant trust deficit. The uneven distribution of the benefits of globalization and the accelerating pace of innovation have disrupted people’s confidence in those in leadership roles; local, national and global institutions and the media. However, trust is an important ingredient for social stability, investment and growth.
Blockchain has the potential to help restore trust and create stronger ecosystems among investors. It offers a way to ensure transparency, limit fraud and corruption, improve efficiency and maximize economic benefits to a broader section of society by creating a record of ownership that compels the consent of all buyers and stakeholders.
Paul Brody who leads EY’s global blockchain practice outlined four major transformations on the horizon for customers and investors in 2017:
- The rise of virtually integrated value chains. Blockchains will help enterprises work together off a single, accurate record of business activity from the furthest downstream retailer all the way back to the most basic raw material inputs. Simple surges and plunges in inventory levels along supply chains have been the cause of major recessions, as information and assets move at different speeds. With blockchains, information and asset ownership can move at the same speed.
- Putting our global capital stock to work. Our world is awash in idle and unproductive assets, worth trillions of dollars. They’re idle in many cases because it’s not easy to determine who owns an asset or whether or not it’s being utilized at a particular point in time. For example, in the United States, the world’s largest healthcare market, the average MRI machine is busy just 25% of the day – that’s an unacceptable waste of resources for a multi-million dollar piece of capital equipment. This can be changed when blockchains are linked to smart Internet of Things devices. Not only will we be able to see what assets are available and where they are, but will put them into real-time digital markets and drive up their utilization.
- A Service Sector Productivity Revolution. While manufacturing has long had a fairly steady and consistent rate of productivity growth, services have struggled to become more productive. Every year, we get better at producing cars and computers, but simple tasks like renovating your home remain complex and time consuming. When most of the world was a manufacturing economy, this was not a problem. Today, where more than 80% of output in industrialized countries is actually services, it’s a major drag on growth. When combined with ubiquitous smartphones and connected devices, blockchains will make it possible to do in the real world what manufacturers have been doing in the factory for decades: precisely coordinating the interaction between people and assets to make them as productive as possible. We are close to a future where machines will not only diagnose their own faults, but can go into a digital market and find repair technicians, spare parts, and coordinate their delivery together.
- Finance disrupted. The transformation of the enterprise landscape with blockchains will bring about its own transformation in finance. For too long, finance has been something that happened after events in the real world. We did things and then sent around bills and payments. Blockchains in the enterprise will change that, embedding finance in every process and business operation. The days of calling around to find out if the invoice has been paid can come to an end. With smart contracts, if the work has been done, it’s been paid for. To be sure, blockchains will usher in a new and ever more efficient approach to global payments and settlements, but the real finance revolution is the one that will shake the enterprise by embedding finance in operations.
Blockchains can’t single-handedly create trust where none exists.
However, their distributed nature and transparency can act as the foundations of trust and make that trust more resilient. They distribute the responsibility for integrity to everyone and make a trustworthy majority more resilient in the face of attack.
We live in a time where traditional institutions can no longer deliver solutions in isolation. What we need now are multi-stakeholder networks built on and building trust to solve global problems. The Global Blockchain Business Council launched by Bitfury represents one important step in that direction.