Blockchain: faster, safer, cheaper

If you think the blockchain is simply about financial transactions, think again. Its tentacles will spread far and wide.

Blockchain came to public notice as the key technology behind Bitcoin. But its potential stretches far beyond crypto-currencies. And it could become fundamental to every electronic transaction, whether that’s making a payment to an internet retailer, settling a trade between brokers or even confirming your identity to a government agency.

how blockchain works

Blockchain is an electronic ledger, or record of transactions. But unlike traditional ledgers it is not held centrally, in a single location. Instead, new transactions are recorded on a public ‘block’ and ‘chained’ to previous transactions so that the full history is available to all. This creates a timeline that can be cross-referenced between users. It makes altering past records for the purposes of fraud all but impossible. Multiple true versions of the blockchain would quickly show up any one chain that had been corrupted, whether or not it was intentional.

Blockchain removes the need for a trusted third party in any transaction on the Internet. Faster, cheaper, safer and less error-prone than other technologies, its potential is being explored by numerous banks and other financial institutions.

By 2022 blockchain could reduce global banks' infrastructural costs by USD15-20 billion a year

That potential is clear. Ripple, the developer of financial settlement infrastructure, recently reported that blockchain-enabled technology could save 33 per cent from the USD1.6 trillion in system-wide costs for global cross-border transactions. And Spain’s Santander Bank says it has already found 20 to 25 uses for blockchain technology in various parts of its business, including smart contracts and international payments. Indeed, Santander UK recently became the first bank in the UK to use blockchain for international payments in a staff pilot. By introducing blockchain technology, the bank estimates that by 2022 it could reduce global banks’ infrastructural costs by USD15-20 billion a year.

Not all transactions involve money though. From deciding on how we are governed to the storing our family photos, blockchain could touch almost every aspect of life.

Challenging eBay

OpenBazaar is an e-commerce site whose developers saw the promise of building a community of people who want to trade directly with each other. Bitcoin and blockchain make it possible.

Now with major venture capital funding, OpenBazaar hopes to be an alternative to eBay and Amazon. “The primary difference is that there is no central company involved in hosting the marketplace and controlling activity,” explains lead developer Brian Hoffman.

Centralised services like eBay and Amazon employ restrictive policies, require personal information to join, charge fees for listing and selling goods, and only accept forms of payment that cost both buyers and sellers money, such as credit cards or PayPal.

bitcoins

OpenBazaar has none of these restrictions or charges. The only question is, how will they turn a profit? “OpenBazaar has no goal for acquiring revenue,” Hoffman explains. “OB1, which is the company myself and some of the core devs of OpenBazaar started, will focus on providing extra services to users of OpenBazaar in the future to make profit.”

iphone in a hand

Controlling identity

According to the US Department of Justice, 12 million Americans fall victim to identity fraud every year. ShoCard, a blockchain-based mobile identity management and verification platform, hopes to change this. “We’re trying to make things you do every day, such as interacting with your bank, travelling and shopping, more secure and private by using your mobile device, along with biometrics, to securely manage your interactions,” says founder Armin Ebrahimi.

For example, revellers unwilling to show a stranger behind the bar their personal IDs can use ShoCard to prove they’re old enough to drink. The ShoCard app creates for them a QR code that the bartender’s smartphone can read. All it tells the bartender then is whether or not to pour drinks. “The bartender never sees your driver’s licence, never has access to your name, address or any other information, and since the certification was done by a well-known authorised agency, the bartender knows it’s safe to serve you alcohol.”

musician

Securing origins

The global digital entertainment and media industry is estimated to be worth USD2 trillion, but huge challenges remain over the way in which content can be copied and freely distributed and how artists are compensated for their material, even through legitimate channels. “Digital content distribution is an industry in crisis,” warns Amy-Elizabeth Oliveira, a strategist at Alexandria, an open-source media library. “Artists are unhappy, audiences can’t access the content they want, and the whole industry is struggling from its inefficient and expensive structure.”

The solution: blockchain-enabled platforms like Alexandria that provide protection to freelancers, musicians and artists, while creating a public, irrefutable record of origin for content. “When creative content is removed from its owner’s platforms, the work can quickly become orphaned, negatively affecting creative and cultural history in years to come,” says Maxine Horn, CEO of Creative Barcode, a not-for-profit based in the UK. “We will turn the tide against the danger of ‘creator unknown’.”

tunnel

Creating a virtual nation

US-based Factom, whose technology is a publishing engine and hybrid blockchain used to secure systems and data, recently won a contract with the Department of Homeland Security to authenticate devices in order to prevent spoofing (i.e. pretending to be an authorised user) and ensure data integrity. Tiana Laurence, a Factom founder, explains why: “Having clarity and protection afforded by blockchain will free up government resources, help reduce mistakes and deter fraud that can happen when you have an open, centralised database.”

The creators of Bitnation are even more ambitious. “Bitnation is the world’s first decentralised, borderless, virtual nation,” says co-founder Janina Lowisz. “It makes use of blockchain technology to provide the same services traditional government provides, but in a new way that enables people to freely choose and pay for whichever services they want.”

blockchain

Since July 2014 Bitnation has organised the first blockchain marriage (albeit not strictly legally binding), registered 3,000 “world citizens” (a private passport that proves that someone exists at a certain time and place, as verified by another certain group of people), created a land registry in Ghana and provided notary services to Estonian e-residents. The Bitnation Refugee Emergency Response even offers Bitcoin Visa debit cards, blockchain identities, Bitcoin donations and a map for volunteers.

Fintech

It would, of course, be impossible to discuss blockchain without attempting to quantify its potential to upend the financial industry. The main impact of blockchain technology will undoubtedly be felt in the financial sector, and banks are keen to be early adopters. As an indication, consultancy firm Aite predicts that capital-market spending on blockchain R&D could surge from just USD30 million in 2014 to more than USD400 million by 2019.

Simon Taylor, former Head of Blockchain R+D for Barclays and now a private consultant, believes blockchain-powered products and services will soon be touching most aspects of finance: “I split this into themes: 1) Provenance: what is the source of goods; 2) Data protection: who accessed my data and who’s allowed to; 3) Legal document automation; 4) New asset classes: securitising things that haven’t been securitised before, like the yields of farms; 5) Internet of things; and 6) Identity,” he explains.

His advice to for companies thinking of exploring blockchain technologies? “If you’re looking for next-quarter profit, stop talking about blockchain. If you’re looking to find a good bet for R+D in a two-to-three year timeframe, it’s worth making time and space available to focus on what blockchain can really do for you and your customers. You can bet your competitors are.”

About

Mega

Mega seeks to energise and enrich the debate over how to create a better-functioning economy and society.

Megatrends are the powerful socio-economic, environmental and technological forces that shape our planet. The digitisation of the economy, the rapid expansion of cities and the depletion of the Earth’s natural resources are just some of the structural trends transforming the way countries are governed, companies are run and people live their lives.

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