While blockchain is best known as the foundation for cryptocurrencies such as bitcoin and Ethereum, many think the technology will emerge as the bedrock of a peer-to-peer economy, transforming industries in the process — that is, if the security of blockchain ecosystems can be ensured.
Until recently, blockchain technology was not on the radar of most organizations. In fact, just 18 months ago, an executive of a major financial organization referred to blockchain as a “technology looking for a solution.”
Attitudes changed by the time of the World Economic Forum 2018 conference in Davos, Switzerland, where the future of blockchain was in the spotlight and the Financial Times reported that Nasdaq was investigating blockchain-based cryptocurrency product opportunities. Nasdaq would join a cadre of believers that includes venture capitalists and an array of startups investing significant time and money — $4.5 billion in 2017 — exploring blockchain technology.
While blockchain is best known as the foundation for cryptocurrencies such as bitcoin and Ethereum, many think the technology will emerge as the bedrock of a peer-to-peer economy, transforming industries in the process — that is, if the security of blockchain ecosystems can be ensured. A major hack that resulted in the theft of $45 million in Ethereum has raised some eyebrows.
Overcoming the security questions discussed in this paper will help ensure the continued evolution of blockchain in the financial services industry and help it mature into a disruptor in other businesses.
The promise of blockchain networks
Blockchain is software technology that supports a distributed digital ledger and enables electronic transactions to be performed between two or more parties without the need for a trusted intermediary such as a bank. It’s like a banknote passing from one hand to another. From that point on, it becomes possible to confer intrinsic value on the information, whose authenticity, integrity and legitimacy are guaranteed from owner to owner. A blockchain, therefore, makes it possible to create unassailable, tamper-proof digital assets and to achieve digitization and disintermediation for documentation (identity, authenticity, ownership, provenance, etc.); rights (usage, access, authorization, etc.); traceability (receipt, reading, editing, time-stamping, etc.); and even units of account (loyalty points, currency, etc.). These enable businesses to increase speed, improve the customer experience, enable innovative processes and reduce costs.
Since blockchain empowers individuals, entities or things to connect directly through a software-driven exchange, it potentially disintermediates value exchanges — thereby reducing transaction costs and inhibitors to market entry. As such, blockchain can create game-changing products and new business models that could deliver remarkable business value.
Potential uses include: food traceability to reduce fraud, thereby protecting revenue and increasing brand provenance; resilient supply chain management in the defense sector; and the ability to provide farmers in the developing world with access to financial tools in exchange for sustainable land-usage best practices.
Blockchain has been around for some time but spent several years in the “hype shadow” of cryptocurrencies such as bitcoin, virtual money transferred as securely and simply as sending an email. Over time, blockchain has become a more established and more viable alternative to traditional transactions. While blockchain 1.0 mainly focused on currency transactions, blockchain 2.0 aims to enable the execution of programmable business logic and autonomous enforcement. Potential business applications include the exchange of digital assets such as bonds, health records, digital rights, payments or supply chain processes.
Don’t underestimate the transformative potential of blockchain vs. traditional techniques. Blockchain technology promises to remove complexity, cost and time delays, while adding transparency and trust to the mix. Because electronic transactions can be performed without a trusted intermediary, blockchain offers the opportunity to reduce transactional friction in the way we do business today.
Read the full paper to learn more about security blockchain technology.