Blockchain might not be something you've heard of before, but leading governments around the world have certainly taken notice. It's a technology that could revolutionize the way organizations are run. The hidden value of bitcoin, the digital crypto-currency platform, lies in the technology that verifies and tracks transactions by network nodes that record the information in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account. It works without a central repository or single administrator, and many governments have announced plans to adopt the technology to keep track of transactions and simplify processes.
Blockchain technology has risen from the shadow of its controversial parent bitcoin. Invented by an unidentified programmer under the name of Satoshi Nakamoto, bitcoin is a crypto-currency and payment system introduced in 2008. The system is peer-to-peer and transactions take place between users directly without an intermediary. Because of its decentralized nature, bitcoin eventually garnered a bad reputation - notorious for fluctuations in its value, and for its use by criminals for extortion, drug purchases and hiring hit-men.
But beneath bitcoin's often perceived shadiness associated with illegal dealings, is the extraordinary potential of the blockchain technology. Blockchain has massive potential that stretches far beyond crypto-currency. It allows people who have no particular confidence in each other to collaborate without having to go through a neutral central authority. Because of this, some have described blockchain as a "machine for creating trust".
Blockchain acts as a shared, trusted public ledger that allows for everyone to inspect it, however there is no single user controls, which removes the potential for corruption. Those who use the blockchain work together to keep the ledger up-to-date and it can only be adjusted according to strict rules. Bitcoin's blockchain ledger can prevent double-spending and it continuously keeps track of transactions, which allows for a currency to exist without a central bank to keep track.
Blockchain's trustworthiness is what has spiked the interest of governments and institutions around the world. The technology allows for a trustworthy record of transactions of every sort. Businesses have recognized its potential, according to a report by The Economist, which cites dozens of start-ups that are hoping to capitalize on the technology, either by doing clever things with bitcoin blockchain, or by creating their own blockchain.
The ability to create "tamper-proof" public databases could be very beneficial for any organization. Documents can be notarized by embedding information about them into a public blockchain, the report highlights, meaning they no longer need a notary to vouch for them. Ultimately, a trusted private ledger could remove the need for checking transactions and it could reduce error. According to Santander banking company, blockchain technology could save banks up to $20 billion a year by 2020.
International blockchain adoption
The potential of blockchain has extended far beyond the use for business. In fact, the Government of Dubai announced in October 2016 that it plans to use blockchain for all government documents by 2020. Several government bodies have announced that they would explore the technology's use in areas such as healthcare. But like any digital transformation solutions that Dubai introduces to further its position at the forefront of technology, simply put, blockchain is a deceptive technology, and security must be put in place.
That is what UAE-based security firm Dark Matter aims to do through its blockchain advisory services and forthcoming blockchain Software Development Kit (SDK). These enterprise-ready offerings are designed for smart cities and other smart systems, and industries such as financial services, financial technology, and healthcare where secure real-time data transactions are mission critical. Dr. Najwa Aaraj, Dark Matter's SVP of Special Projects, says the company aims to enable blockchain technology to be integrated into current solutions, but also to layer security on top of it.
"What I mean by that is to have the authentication layer and have the proper privilege management infrastructure, to help clients understand what kind of blockchain's they need to implement - be it a private one, a public one, consensus-based, etc," she says. "The final most important thing is to make sure that data and transit that is happening during a transaction is confidential."
As governments, banks and enterprises move to explore the benefits of blockchain technology, Dr. Najwa highlights the often forgotten factor of security. There will no doubt be those who will oppose blockchain because of its uncertainness. But given the growing distrust in governments and banks around the world, blockchain's ability to create more transparency in government and in business could be a good thing, some claim. For the technology to be truly useful, blockchain must enable trust among the parties involved.
That being said, regulations for the technology are far off, especially since blockchain's full potential could still yet be discovered. The Economist report points out that regulators should "stay their hands, or find ways to accommodate new approaches within existing frameworks," as opposed to risking a rapidly developing technology with heavy rules and regulations. With too many regulations put in place, it could stunt the potential of blockchain - especially now that so many governments are aware of its potential.
The U.S. state of Delaware has recognized the benefits of blockchain, where Governor Jack Markell recently announced two blockchain initiatives, under the theme ‘Delaware is open for blockchain business'. The first part of the initiative includes moving archived records to an open distributed ledger. The second part of the initiative involves allowing any private company in the state that adopts blockchain to keep track of all the equity issued and the different shareholder rights on the blockchain.
The city-state of Singapore has also taken an interest in blockchain technology, only this time adopting it to prevent traders from defrauding banks. A report by the Observer says Singapore's drive to adopt blockchain was driven by an incident where Standard Chartered lost almost $200 million from a fraud in China's Qingdao port about two years ago.
Duplicate invoices were used by companies for the same goods to get hundreds of millions of dollars from banks, so the Singapore government developed a "system with the local banks focused on preventing invoice fraud by having the blockchain create a unique cryptographic hash (a unique fingerprint) of every invoice," the report reads. The banks could then share this fingerprint access as opposed to sharing raw data. If another bank tries to register an invoice with the same details, the system will be alerted.
Meanwhile in Sweden, the technology is being adopted to place real estate transactions on the blockchain once a buyer and seller agree on a deal and a contract is determined. Once the transaction has been recorded, all parties - including banks, government, brokers, buyers, and sellers - would be able to track the progress of the agreement. This would allow for seamless confirmation of valid transactions with the "utmost levels of security and integrity".
Blockchain technology might not come across as exciting, but it sure is useful, and could transform governments and businesses into well-organized, cooperative, trustworthy organizations. The idea of a pure, digital currency out of reach of any central bank is enough to excite those who have lost faith in how current governments and businesses keep track of finances. What has happened since bitcoin is that its underlying technology has proven to be more useful as a means of tracking digital transactions.