The Bitcoin-underpinning technology known as Blockchain is currently being touted as the cure to many ailments in our society. It's not difficult to find TED talks which describe blockchain as something which will revolutionise business processes and democratise money itself.
Don Tapscott, digital strategist and CEO of the Tapscott Group, a think tank which explores the impact of the digital revolution on business and society gave one such talk. He opened his June 2016 TED talk with strong words on the distributed ledger technology saying, “The technology likely to have the greatest impact on the next few decades has arrived. And it's not social media. It's not big data. It's not robotics. It's not even AI. You'll be surprised to learn that it's the underlying technology of digital currencies like Bitcoin. It's called the blockchain."
According to Tapscott, blockchain is going to be so hugely successful at changing our lives when it comes to money because we're currently relying on banks as intermediaries for financial transactions. In their role as intermediaries they can be hacked, as demonstrated by JP Morgan, Linkedin, Yahoo and many more.
He added: “They exclude billions of people from the global economy, for example, people who don't have enough money to have a bank account. They slow things down. It can take a second for an email to go around the world, but it can take days or weeks for money to move through the banking system across a city. And they take a big piece of the action -- 10 to 20 percent just to send money to another country.”
Ajay Vij, vice president and head of financial services in Europe for Infosys agrees: “Blockchain represents a ground-breaking opportunity for governments to lower transaction costs, improve data security and enable transparency into their processes. The digital time-stamping and chronological nature of records in a blockchain distributed ledger ensures integrity of data. 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.
The government appears to be coming around to the idea of using blockchain too. In a report released in December 2015, the UK Government's chief scientist, Sir Mark Walport, said that, “distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services.”
The UK Government's Government Digital Services commissioned Credits, a built-from-scratch blockchain platform provider, to supply its Blockchain-as-a-Service to UK Government and public sector via The Digital Marketplace in August 2016.
The Crown Commercial Service (CCS) awarded a place on the G-Cloud 8 framework agreement to Credits for the supply of distributed ledger technology (DLT), enabling the Credits Blockchain platform-as-a-service to be used by organisations across the UK public sector including central and local government, the devolved administrations, health, education, emergency services, defence and not-for-profits such as housing associations and charities.
The same month, Gartner said in its Emerging Technologies graph that blockchain is still a technology that people are excited about. It said, “Within these dynamic ecosystems, organisations must proactively understand and redefine their strategy to create platform-based business models, and to exploit internal and external algorithms in order to generate value. Key platform-enabling technologies to track include [amongst other things] Blockchain.”
But not everyone seems as convinced.
Ian Trump, global security lead at SolarWinds MSP told SC: “Honestly, I don't know how blockchain has the ability to ‘revolutionise' business. Blockchain is an immature technology, and while the core technology is secure (so far), services using blockchain have created an attack surface for hackers to exploit and use – Bitcoin being the classic example.”
Blockchain is a term hard to split from Bitcoin. This has all manner of negative connotations, the obvious one is that Bitcoin is the currency often used to pay for items of a dubious nature on the Dark Web and on Silk Road, the now closed online drugs bazaar which had been at the centre of a large FBI scandal.
Trump continued: “For a ‘secure' currency, Bitcoin seems to get stolen – a lot. Some US$ 78 million (£63 million) of the currency was stolen from the Bitfinex exchange in August of 2016 – one of many examples. At this point in time, it's tough to say whether blockchain is salvation for businesses or enabling cyber-crime on a massive scale. The favored currency of cyber-criminals armed with ransomware is Bitcoin, built on the foundation of the blockchain.”
A lot of misunderstandings occur around the idea of its openness, and the idea of the ledger being distributed. This can lead to the misconception that because something is distributed there is therefore no overall controlling authority or owner.
This may or may not be the case — it depends on the design of the ledger. In practice, there is a broad spectrum of distributed ledger models, with different degrees of centralisation and different types of access control, to suit different business needs. For example, some financial organisations are attempting to harness the power of Blockchain, but are suggesting it runs on a private ledger, however this defeats the point of the use of an open ledger to which everyone has access.
Andersen Cheng, CEO of Post Quantum, a company which uses elements of blockchain in its products to secure information, told SCMediaUK that he, “doesn't doubt blockchain's usefulness, but highlights the fact that distributed ledger technologies are a software process, and thus not cryptographically secure.”
He explained: “The process of ‘garbage in, garbage out' applies here. For example, some art dealers have taken up using blockchain to prove the provenance of a piece. It is helpful because using blockchain means the records can't be faked or altered. However, what those same people neglect to tell you is that blockchain doesn't verify the information on the record itself is correct.”
Cheng isn't convinced of their ability to be secure either. He said: “Many large corporations, such as Microsoft and IBM, have taken up the use of the Ethereum project which is a public blockchain-based distributed smart contract platform which provides a decentralised virtual machine, the Ethereum Virtual Machine (EVM), that can execute peer-to-peer contracts using a cryptocurrency called ether.”
However, Cheng highlighted that, “the Ethereum project currently uses elliptic curve cryptography. This is not resistant to the power which quantum computers will bring.” Because of a quantum computer's ability to factor and essentially ‘guess' keys used for cryptographic signing, it is feared that someone might be able to ‘sign' a block fraudulently.
It is important to mention at this point that Etherium is going to change this. It's upcoming Serenity upgrade will give users the ability to specify their own scheme for validating transactions, so individuals could choose to use Lamport signatures or other quantum proof algorithms.
Cheng concluded: “People need to learn what blockchain can and cannot do. The majority of people don't. Trying to force blockchain into businesses practices doesn't always work, especially when trying to shoehorn it into being perceived as technologically advanced. I strongly believe it will be a long time before it will become truly useful.”
So what's next?
As mentioned in Tapscott's TED talk , it is very clear why certain current systems in the world of finance and government, for example, might not currently work in favour of consumers, and where they could be taken to and improved.
Tapscott said he wants to see, “not only an internet of information,” but also an, “internet of value -- some kind of vast, global, distributed ledger running on millions of computers and available to everybody.”
Tapscott claims that such a ledger could store, “every kind of asset, from money to music,” which will allow it to be stored, moved, transacted, exchanged and managed, all without powerful intermediaries to take a percentage.
He asks, “what if there were a native medium for value?”.
The conversations around the possibilities of blockchain largely appear to be located in the realms of hypothesis. Bringing it back to reality, Carl Lehmann, principal analyst at 451 Research told SC: “all the moving parts [of blockchain] still need to be hardened to overcome some of its limitations like for permissioned and permissionless use cases, high transaction throughput, low consensus latency, and fairness in transaction ordering - among others.”
Chris James, a senior associate for US law firm Paul Hastings, deals extensively with blockchain and Bitcoin with his clients. Speaking to SC, James highlights that “Financial institutions need to be cognisant that their systems and controls will need to ensure that operational risk is not increased by using blockchain, versus using more traditional trading venues. In particular, relying on a third party blockchain might mean that outsourcing regulations apply, depending on how the platform is structured.”
James added: “The use of blockchain will potentially offer a number of upsides including the ability to create more innovative or bespoke products, using smart contracts. These will likely be subject to regulation as any traditional product. The use of smart contracts does not necessarily obviate the need for traditional contracts to underpin the product (for example, you could have a Smart Contract Master Agreement).”
The Wealth Management Association (WMA) hosted its inaugural Fintech conference at KPMG's headquarters at Canary Wharf in September 2016. In attendance were delegates from a range of wealth management firms, as well as experts on the latest technology innovations such as blockchain and robo-advice.
In attendance was Alderman professor, Michael Mainelli, an independent expert on blockchain, who discussed the impact of mutual distributed ledgers on the wealth management industry in general and on securities in particular.
Mainelli said: “Blockchain is over twenty years old, but it has risen to prominence in financial services due to Bitcoin. A lot of people in finance like to think they are ahead when it comes to technology, but the reality is that they are behind. The benefits of a blockchain ledger is that it is unable to be changed, and that it is mutually owned.”
Mainelli concludes: “Blockchain is not a silver bullet: it will not save industries that are struggling to adapt to technology. The industry needs to have the willpower to change.”