Kathy Gibson at IDC’s CIO Summit in Johannesburg – Blockchain goes way beyond bitcoin, and some pundits are calling it the future of the Internet.
It is certainly a reality, says Mike Rosen, vice-president: research strategic architecture at IDC. In South Africa, banks and other institutions are working together on a blockchain system within the country’s financial services industry.
In fact, some institutions believe that if they don’t get to grips with blockchain they will be left behind in the near future.
Rosen explains that the blockchain concept began with bitcoin back in 2008 during the global financial crisis. Whoever first created it is still anonymous.
Blockchain works by representing information in a block that is broadcast to participants that participate that the information and the hash accompanying it are correct, and it gets transferred along the chain.
Essentially it is an algorithm for an immutable ledger, keeping track of everything forever, from the creation of the transaction.
One of the advantages of the blockchain distributed ledger is that it removes the need for a trusted intermediary.
“This disintermediation, for the intermediaries, means they are out of business. They need to get with the programme.”
The characteristics of blockchain include that fact that it is publicly verifiable; it is transparent; there is distributed consensus; it keeps track of sequence, provenance and pedigree; and it ensures privacy, integrity and redundancy.
Use cases include transactions and smart contracts in a shared and replicated ledger among all participants. This is the kind of transaction that South African banks have already tested.
By 2020, it is expected that 20% of trade finance globally will incorporate blockchain technology. In addition, 30% of government agencies will have at least a test project in place by the end of 2017. And, by 2019, 30% of all Internet of Things (IoT) deployments will have basic levels of blockchain services in place.
Possible use cases include digital securities trading, escrow, decentralised prediction platforms for share markets and other financial processes.
There are also a number of non-financial use cases, including securities trading, proof of ownership, contracts and more.
“Some people are going to get disrupted by this technology,” says Rosen. “The banks will definitely be disrupted.”
While there are numerous benefits from blockchain, including its immutability, transparency and longevity, there are a number of challenges as well.
Processing could be an issue, while connection with existing IT systems is being explored now. Technical skills will almost certainly be a major limiting factor since no-ne is trained in blockchain at the moment. Regulatory issues have still to be explored, and will onl be resolved as regulatory bodies catch up.
“For now, we’re telling people that this is good to experiment with,” Rosen says. “They should start to think about the opportunities. Look for other people in your industry, join consortiums and work with regulators to create smart regulations.
“Smart contracts are working already and are a good way to transfer value.”