In May 1995 Bill Gates sent his staff at Microsoft an internal memo to support the “internet tidal wave” despite questions being raised over the role this technological development will play in the future. Little did the public know at that moment in time that Microsoft would be the pioneer in the space and all our lives would never be the same again with the developments that were about to happen. Fast forward two decades and we are now in the same position with blockchain.
The technology, which many know as the underlying system that supports bitcoin, was created in 2008 by the anonymous Satoshi Nakamoto, partly in response to the global financial crisis. With trust in global institutions at an all-time low, Nakamoto had a vision to create a system for electronic transactions which didn’t rely on trust. For the first time, a currency was brought into the public sphere which wasn’t controlled by a government or a financial institution.
Ten years later and now the mainstream media is starting to recognise the role that blockchain and bitcoin can play in the future. The exponential price increase of bitcoin and other cryptocurrencies has helped this area gain attention, but now it’s time to move the conversation away from price speculation and the potential ‘bubble’, instead looking at the applications of the underlying technology (blockchain) and why it is so important for businesses to embrace.
First of all, it is vital to understand two fundamental points that make blockchain so significant for businesses; trust and transparency.
The blockchain is a distributed database that can be shared across a network of multiple sites, geographies and institutions. Visualise in your mind a giant, global spreadsheet that runs on millions of computers which is distributed and open source, so anyone can insert information, which can be seen by everyone. This makes it a truly peer to peer and open style of technology, which doesn’t require powerful third parties like banks to authenticate or to settle transactions. It inherently enables transparency. Anything that happens on it is a function of the network as a whole.
If we think back to the 2008 global financial crisis, the lack of transparency was one of the many reasons why the industry ended up in a crisis. The public was relying on these institutions, trusting that they were doing the right thing with their money, but actually the majority were unaware of what was really going on behind the closed doors. With blockchain, we could have been in a better position to understand the assets which institutions owned, and perhaps expose the risk. Now I’m not saying the blockchain would have stopped the financial crisis, but if institutions were using a system which promoted transparency, it might not have ended so badly.
Another significant opportunity with the blockchain, is its inherent ability to prevent against cyber security attacks. Blockchain security methods use encryption technology, and by storing data across its network, the blockchain eliminates the risks that come with data being held centrally. Its network lacks centralised points of vulnerability that computer hackers can exploit. Therefore, any hack, theft of assets or system failure that does occur, will be localised as opposed to systemic across an entire database – creating a much more robust system.
The benefits of blockchain in financial services makes sense, but over the past 10 years we have seen new opportunities emerge to democratise processes in other industries that are traditionally very complex. A perfect example is land registry in third world countries. We have seen crises arise in place like Honduras where the government has evicted families from their homes and taken control of the land. With blockchain, land registry can be publicly and uncompromisingly recorded on the blockchain and the ownership cannot be altered by governments or other third parties. It therefore acts as a source of truth. This is just one of the many opportunities blockchain has to eliminate future crises.
Looking forward, the ambiguity and debate concerning bitcoin and other crypto currencies will continue, but it is clear that the underlying blockchain is here to stay. The technology has the power to truly transform financial services and other sectors, and usher in a revolutionary new era of trust and transparency.
With that in mind, we welcome you to attend Blockchain Week in January 2018 to hear how this technology can transform a number of sectors including financial services, law, healthcare, and many more. Lansons will be supporting the promotion of the event, and Chief Executive Tony Langham will be chairing a panel of industry experts to discuss the pertinent issues surrounding Blockchain and its potential applications in financial services.
For more information, or if you are interested in attending or participating in the event, please contact us at:BlockchainWeek@lansons.com
This article is part of our special edition Crisis and Issues Management newsletter.