Blockchain has been saved
Enigma. Paradox. Opportunity
There are new and emerging opportunities for organisations in all sectors to create and deliver compelling services for their customers using the power of disruptive innovation. As organisations formulate their plans for the coming months, this paper aims to help business and public sector leaders understand the cultural and organisational challenges that are inevitably brought by the use of blockchain technologies, and provides them with the insights they need to overcome them.
You may have read about Bitcoin or heard about it at a ‘FinTech’ conference. You may have used Bitcoins to purchase pizza, coffee or even a spaceflight. Wherever the digital currency comes into discussion, fierce debates often follow.
Early adopters passionately claim that Bitcoin will remove dependencies on banks and governments. Hardened business tycoons advise that Bitcoin is just a ‘flash in the pan’. While the debate about Bitcoin rages on, researchers have been quietly examining the technology that underpins this and other digital currencies.
This is the realm of the blockchain – a protocol for exchanging value over the internet without an intermediary – and there is a growing buzz about how it might transform not just banking but many other industry sectors, too.
In our view, there are new and emerging opportunities for organisations in all sectors to create and deliver compelling services for their customers using the power of disruptive innovation. As they formulate their plans for the coming months, we also hope that this paper helps business and public sector leaders understand the cultural and organisational challenges that are inevitably brought by the use of blockchain technologies, and provides them with the insights they need to overcome them.
What is blockchain and how does it work?
Despite its apparent complexity, a blockchain is just another type of database for recording transactions – one that is copied to all of the computers in a participating network. A blockchain is thus sometimes referred to as a ‘distributed ledger’. Data in a blockchain is stored in fixed structures called ‘blocks’. The important parts of a block are:
- Its header, which includes metadata, such as a unique block reference number, the time the block was created and a link back to the previous block
- Its content, usually a validated list of digital assets and instruction statements, such as transactions made, their amounts and the addresses of the parties to those transactions.
Given the latest block, it is possible to access all previous blocks linked together in the chain, so a blockchain database retains the complete history of all assets and instructions executed since the very first one – making its data verifiable and independently auditable.
As the number of participants grows, it becomes harder for malicious actors to overcome the verification activities of the majority. Therefore the network becomes increasingly robust and secure. Indeed, blockchain solutions are being planned to protect data from the UK’s nuclear power stations, flood-defence mechanisms and other critical infrastructure.
The Internet of Value-Exchange
The way in which many established transaction processing systems work is very different from the decentralised and distributed nature of a blockchain. For certain applications, the current model of value creation is likely to be bettered by faster, cheaper, more reliable and transparent processes enabled by the blockchain. Perhaps the most significant opportunity, though, comes from blockchains that link currently disparate parts of one enterprise together or even many different organisations from within the same sector.
As the blockchain ecosystem evolves and different use-cases emerge, organisations in all industry sectors will face a complex and potentially controversial array of issues, as well as new dependencies.
These will include building awareness and understanding of the blockchain technology, its cost and efficiency, regulation and governance, security and privacy as well as an openness to cultural shifts, including cross-industry collaboration.
From vision to reality
Some bold predictions suggest that the institutions at the centre of current transaction systems will cease to exist in just a few years. Others are more conservative, positing a relatively low impact in the short term for blockchain applications other than payments. The reality is likely to be somewhere between these two extremes. And different markets will also move at different speeds, particularly where the role of central institutions is less dominant.
Ultimately, the blockchain is not just about cryptocurrencies and faster peer-to-peer payments. It is also part of an ecosystem of advanced but fledgling technologies, including artificial intelligence, robotics and crowdsourcing, that look set to play a fundamental role in the future of commerce and society. Blockchain will affect the way that individuals and organisations interact, the way that businesses collaborate with one another, the transparency of processes and data, and, ultimately, the productivity and sustainability of our economy.
Blockchain applications in banking
The thinking around blockchain concepts to facilitate the exchange of money is well-established. Indeed, this is the original use-case for digital currencies like Bitcoin. However, there are further opportunities for banks to use the blockchain technology to improve other services and compliance activities less likely to be subject to disintermediation.
Blockchain applications in insurance
Insurers, like banks, are intermediaries and, at first glance, there is great potential for insurers to use blockchain technology to streamline payments of premiums and claims. In addition, blockchain technologies could support the significant digital transformation underway in the industry because much of this transformation relies on data.
Blockchain applications in the public sector
The public sector is a complex machine – centralised in respect of its responsibility for governance and public service delivery, yet fragmented and often disconnected in terms of its organisational structure and ability to share data. The effects of long-running austerity cut deep – reductions in departmental budgets offer a stark choice to central and local government bodies alike: sweeping cuts, shrinking headcount and reduced services on the one hand or wholesale transformation of service delivery on the other.
Blockchains could be used to address inefficiencies in current systems and increase the effectiveness of public service delivery.
Blockchain applications in the media industry
Digital technologies have transformed content production and distribution in the global entertainment and media industry over the last two decades. Acute challenges remain, though, especially relating to the way in which digital content can be copied and freely distributed on the internet, and how artists are compensated when their materials are used or bought through legitimate channels.
Blockchain technology could help to resolve a number of these challenges by connecting authors, musicians and videographers directly with consumers, as well as by making the organisations at the heart of the industry operate more efficiently.