Blockchain, the digital ledger that underpins cryptocurrency Bitcoin, is a software platform for digital assets; a clever piece of distributed database technology, which is waging a silent revolution that could take it way beyond its financial roots to radically change the way our society works.
“Where Blockchain technology is concerned it has the potential to create a whole new revolution in digital money, and this trend is expected to grow widely in the African region as companies and consumers adopt new methods of transacting,” says Mark McCallum, country manager, South Africa, at Orange Business Services.
Imagine a gargantuan, open source spreadsheet, which no one owns and everyone in its network can access – but once a transaction is made it can’t be erased or altered. This is the essence of blockchain.
The first major blockchain innovation was implemented as a key component of Bitcoin, acting as a public ledger for all transactions. Organisations then realised blockchain technology could be separated from the Bitcoin currency and used for other financial tasks. Many multinational banks are already looking at potential applications for blockchain throughout the financial services value chain.
“In addition to the financial services businesses, other African businesses and start-ups have found their niche in alternative technology - provided by the power of digitalisation - in closing geographical gaps between rural communities and the formal economies,” comments McCallum.
“A digital economy based on blockchain could hold African businesses to a new level of accountability,” he adds. A host of companies are advancing blockchain development. Chainforce, an initiative set up by Orange Silicon Valley, is working with developers and start-ups to foster Minimal Viable Blockchain Applications (MVBA) to create real-world commercial solutions.
Orange has invested in blockchain specialist, Chain, and has established a blockchain working group to explore the application of the technology in various markets. Chain recently collaborated with the Thales Group to make it easier for large enterprises to use blockchain to safely store their security credentials. Brian Behlendorf, the executive director of Hyperledger, an open-source project to advance cross-industry blockchain technologies, also believes “that if organisations and developers pull together it could have as big a transformational effect on our society as the web”.
Changing the face of business
Blockchain is already having an impact on global trading. A number of financial institutions are looking into blockchain technology to streamline processes and save time and money, an example of which is the South African Reserve Bank’s (SARB) willingness to consider the merits and possible implementation of blockchain. In addition, Barclays Bank and start-up Wave, have already completed a blockchain trade finance transaction. One of Barclays’ first blockchain collaborations in Africa is with Consent in 2015, according to Quartz Africa. Trading transactions normally include many participants in different jurisdictions around the world, which requires a large amount of paperwork, including countersigned and couriered documents. Barclays believes that blockchain will speed up global transactions and reduce costs in addition to minimising the risk of document fraud. Barclays sees the biggest beneficiaries here as the shipping industry and financial institutions.
But its potential is moving well beyond the financial sector because the distributed cryptographic method it uses can be helpful for all sorts of transactions. Hyperledger, for example, has been helping South African diamond specialist De Beers use blockchain to differentiate legitimately sourced diamonds from those that have be sourced from war zones. Start-up Everledger has created a global digital registry of diamonds powered by blockchain in a bid to stamp out diamond theft and fraud.
In the defence industry, Lockheed Martin maintains it is the first US defence contractor to utilise blockchain technology. It plans to integrate blockchain into its cybersecurity protection. Blockchain will enable more efficient and secure software development along with supply chain risk management.
“These new cybersecurity approaches will enhance data integrity, speed problem discovery and mitigation, and reduce the volume of regression testing, which results in reduced schedule risk,” explains Ron Bessire, Lockheed Martin Aeronautics' Engineering and Technology vice president. “The faster our developers can discover issues, the faster we can deliver.”
Blockchain is also proving itself in record management. The University of Melbourne, for example, is working with start-up Learning Machine, affiliated to MIT’s Media Labs, to create a system that will make student records available on a secure system for employee verification. The beauty of the blockchain database is that it will be tamperproof. The Office of the National Coordinator for Health Information Technology (ONC) in the US is also looking at securing and recording medical records using blockchain.
Blockchain’s weak links
While the technology has great potential, it is not without its limitations. Deloitte recently pointed out that resolving challenges such as transaction speed, verification processes, and data limits will be crucial in making blockchain widely applicable. Blockchain and Bitcoin also face a hurdle in terms of widespread adoption by pre-existing financial institutions. .
Deloitte also pointed out that while solutions exist, including private or permissioned blockchains and strong encryption, there are still cyber security concerns that need to be addressed before the general public will entrust their personal data to a blockchain solution. It represents a complete shift to a decentralised network, which requires the buy-in of its users and operators.
While the technology offers tremendous savings in terms of transaction costs and time, the high initial capital costs could be a deterrent to its growth.
A force for good
Blockchain may be pivotal to commerce, but it is already helping our world for the better. The United Nations (UN is piloting the technology as part of its World Food Program (WFP), utilising cryptographically unique coupons at several shops in refugee camps in Jordan to ensure the safe transfer of funds to recipients. In another project, blockchain platform BanQu is helping displaced Somalis in Kenya create financial identities for themselves, providing unbanked people with a footprint in the global economy.
Speaking at a recent conference organised by the MIT Media Lab and MIT Review, Behlendorf drove home the point that blockchain is far more than finance. “This is an opportunity to reinvent how much of the world works”. Given the developments underway he just might be right.
“For a continent like Africa, where security is a growing concern, blockchain technology aims to combat fraud by building a traceable history of exchange. It has the potential to provide more access to essential services for people living in the most remote areas, and reduce long-standing inefficiencies and costs within the financial services sectors in several African economies. From enabling micropayment systems to digital identity management, blockchain-based solutions could drive a new era of more inclusive growth,” says McCallum.