Hype vs. reality: We investigate the potential in blockchain

Hype vs. reality: We investigate the potential in blockchain

At the end of last year Brave New Coin ran an article titled: “Ten companies using the blockchain for non-financial innovation”. In the midst of all the hype about blockchain, this listicle probably provided the clearest view of how blockchain really can be used outside finance. This was because it offered practical examples that entrepreneurs are actually trying to make reality.  

Some of the more interesting new companies in the space include better digital rights for artists, insight into the supply chain – for particular items, like diamonds, and across the spectrum – along with a new service to “backup your DNA”. I contacted a number of the companies listed but it is all such early days that nobody was prepared to be interviewed.


What exactly is blockchain?

As Ed Wallace, Director of Advanced Threats at MWR InfoSecurity explains: “Blockchain is just a record of transactions, like a double-entry book keeping system or ledger, that can be distributed – shared with whomever you want or is completely public – that uses encryption as a way of validating the entries are correct and can’t be changed.”

At an even more prosaic level it is a database. “What exactly could it do now that we couldn’t do with database technology like SQL before?” asked Luke Parker in the Magnr Blog recently. “Not much, really, and it would also be much slower than a SQL database. All of the advantages derived from basic blockchain technology can be boiled down to only two benefits; corruption resistance and redundancy.”

Rahul Singh, President of Financial Services at HCL Technologies spells out a pragmatic everyday use case which combines financial potential with other areas.

“Imagine a smart lock to a public toilet. Imagine now that it can be opened instantly by making a payment over a mobile app that is dictated by rules embedded in a smart contract using blockchain technology. When the rules are met, the lock opens. Money becomes the key, and the transaction is completed, securely and in an auditable manner.”

However, there is still a lot of debate and speculation about where the biggest opportunity really lies. Middlesex University recently produced an in-depth report titled “Music on the blockchain” [PDF]. While Mustafa Al-Bassam, IT security advisor at Secure Trading believes “the biggest impact is likely to be in sharing economies and online marketplaces, by reducing middlemen fees”.

“For example,” he says “consider a flat rental marketplace on the blockchain, where there is no need for a company like Airbnb to take a cut – with a smart contract connected to a smart door that opens automatically upon payment without the need for physically transferring keys. This already exists today to some extent with Open Bazaar, a decentralised online marketplace that uses Bitcoin and Slock.it, which is a start-up that lets you represent physical objects on the blockchain.”

Ron Hirson, head of product at DocuSign adds further perspective “as with most technological breakthroughs, blockchain’s success depends almost entirely on its interpretation and application. To many the potential is huge. To others, it’s just a distributed database. It’s up to the first group to develop innovative use cases that convince businesses of its value.”


How does blockchain fit in with Bitcoin?

The public ledger for Bitcoin transactions is the most famous blockchain but it is by no means the only one. Yet the real split is between private and public blockchains.

Luke Parker presented an excellent discussion on the difference between private and public blockchains and whether both can prevail recently in the Magnr Blog. But the very short answer is that the main benefit of the public blockchain is that it is open and transparent – although this can, of course, throw up issues of its own – while private blockchains are much faster but have been described by popular Bitcoin speaker Andreas Antonopoulos as akin to corporate intranets.

“If the Bitcoin maximalists are wrong about Bitcoin becoming a global monetary standard, it is likely that one of these top-level banking consortiums using a private blockchain will dominate the future of mainstream finance,” says Parker.

Luke Sully, Associate Partner, Blockchain Security Services Lead at IBM tells us that there are hundreds of Proof of Concepts being developed for private blockchains by organisations all over the world at present.

“Essentially 2016 remains a Proof of Concept market,” he says “but key concepts and standards are still missing or only currently emerging to mature the technology. Many implementations aren't yet ready for serious business use yet.”


Where are we now with blockchain?

As Stephen Holmes at VirtusaPolaris FINtech Banking Lab points out “we are only at the beginning of the adoption curve for this disruptive technology”. The smart contracting platform, Etherium, for example, has been around for just one year – with the first block written on 30th July 2015.

Sinan Baskan, Solutions Director, Financial Services CTO Solutions at MarkLogic Corporation believes even with the support of governments, global banks and corporations, this is a decade-long transformation. 

In the government sphere the UK clearly leads the way although many other countries are taking interest. However, Ajay Vij, Vice President and Regional Head of Financial Services, Europe at Infosys believes in future “blockchain will be particularly useful in supporting government initiatives to protect citizen’s identities, tax collections and welfare payments from fraudulent misuse, while improving accuracy in state records.”

Yet government aside, Baskan feels “currently there’s not enough visible support for blockchain from more established companies such as IBM, who no doubt will be watching closely and making their own plans”.

“I doubt very much the key players will move quickly to rely on current solutions from start-ups and application vendors,” he adds “they will wait until the established players reveal their own plans.”

He also suggests that although cutting the time window on various transactions may be tipped as a benefit of blockchain in various financial organisations but “given other more pressing operational and competitive priorities and the huge up-front capital investment required, it is not clear who is complaining about the status quo and is ready to embrace blockchain”.

Like most potential changes this will not be good for everyone. Kerim Derhalli, CEO of invstr believes: “The implications for digital intermediaries such as custodians, stock exchanges and registries are potentially very negative – they will be the most vulnerable to dis-intermediation by blockchain-based technologies. These groups need to either embrace the technology now, or be disrupted by it.”

Singh of HCL Technologies agrees. “The evolution of the technology is relentless. Not only are use cases becoming interesting, but some developers are looking at parallel blockchains and sidechains that eliminate dependence on a single blockchain while improving scalability. This only goes to show that the innovation around this technology is already boiling over.”

Luke Sully, Associate Partner, Blockchain Security Services Lead, IBM adds: “What's fascinated me, as someone who has looked at the growth of this technology since 2012, is how quickly the concept of blockchain has permeated public consciousness and how open organisations have been to thinking about their business in such a drastically different way. We continue to call blockchain technology ‘revolutionary’, we are building blockchains, investing in open source blockchain projects and working with hundreds of clients on this. It’s a strategic imperative for us globally.”

Victor Lynsenko, VP Acronis Blockchain Solutions seconds this adding that blockchain “keeps gaining momentum, investments in it keep growing and new use cases are uncovered, its applications and business benefits are quickly being exposed”.

In terms of more concrete timescale Stephen Holmes at VirtusaPolaris FINtech Banking Lab feels that initial deployment of blockchain solutions inside banks is likely to happen late 2016 to early 2017. “In the financial services community, a standards consortium is now in place (R3CEV); standards for exchange of blockchain information between participants are currently being drafted, and will likely come to fruition in the next two years.”

Adrian Shedden, head of fintech at law firm Burges Salmon is more cautious though. He believes initial scaled commercial use will arrive by 2020 with wide-spread multi-sector use by 2025.


What is the truth about the hype?

Most of the people I’ve spoken to in the course of researching this piece believe that there is huge potential in blockchain which goes a lot further than hype.

Shedden of Burges Salmon clarifies, “with the likes of R3 CEV, Deloitte and the Bank of England, the FCA, Parliament and other heavy hitters getting involved we’re certainly beyond hype.”

Michael Cooper, BT’s CTO for Radianz Services says while this is not without hype he does believe the opportunity is significant. “There’s no shortage of postulating about blockchain potential. However, we do think the integration of blockchain technology with machine learning, artificial intelligence, behavioural analytics and similar technologies is potentially very interesting.”

This will allow users to obtain intelligence and insight from the data that is encoded in the blockchain, such as detection of behaviours, identification of fraud, developing provenance, he explains.

There are, of course, problems associated with all the hype though. As Andersen Cheng, CEO at Post-Quantum puts it blockchain “has been hyped up as being the solution to every problem in the world”.

“This includes everything from tracking parking tickets to valuable paintings,” he says. “To put this into context, this attitude is akin to saying Excel is a wonderful and useful tool to record entries, which is fine. However, it is not an end-to-end solution and does not address the fundamental audit points of such records' completeness, accuracy and validity at the point of entering a ledger which leads to a ‘rubbish in, rubbish out’ syndrome.” 

Mustafa Al-Bassam, IT security advisor at Secure Trading agrees. “I think the large companies and banks are talking about the wrong things when it comes to blockchain. They're talking about private blockchains, which are fundamentally no different than a fancy Excel spreadsheet, whereas the people at the heart of the movement are talking about completely different things. The large banks are trying to adopt blockchain technology in a way that they would like to see according to their business structure, but also in a way that doesn't make practical sense if you understand the technology.”

The difficulty with blockchain technology is that, because it's fundamentally structurally different than existing systems, there's a massive adoption barrier for people, he explains. This means it could be many years before it becomes the norm everywhere, if it does. If large businesses are smart about adopting it, I suspect we might see more B2B use cases of smart contracts first, before it gains mass consumer adoption.

“Unfortunately I do see a large number of proposals for blockchain use cases that should not be done on a blockchain at all but on standard web technology,” he concludes. “This could harm the industry in the short-term, but at the end of the day the actual realistic use cases will come to fruition.”


Also read:

UK government continues its blockchain lead

What’s a blockchain? And is it heading for prime time?

New blockchain tech partnership aims to trace child porn peddlers

Start-ups vs. big banks: What is the future of money 2026?


«Lessons from the Sage data leak


Can AI bring fintech to Africa and help bank the ‘unbanked’?»

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