Paperjam, December 2018
Blockchain technologies: finally mature
The blockchain technology became popular with the Bitcoin cryptocurrency. For the first years, the Bitcoin price was relatively stable and even considered less volatile than gold or petrol. In 2017, the cryptocurrency ascension was impressive - from less than US$1,000 for a Bitcoin up to US$20,000 and then down to US$14,500 within 2017. Bitcoin not only grabbed the attention of Wall Street, but also many individual investors saw business opportunities in the cryptocurrency and the next big technological jump. Hence, Bitcoin joined the global financial system.
The technology behind Bitcoin
The technological foundation of Bitcoin is blockchain, which became very promising to enterprises to apply this technology in all business domains. It is a database and a network at the same time with three major features:
- Distributed ledger - Participants in the network keep a copy of all transactions, which are secured by encryption to prevent tampering
- Consensus algorithm - No one node or server is responsible for approving transactions leading to genuinely distributed transaction processing. Each entry is validated and recorded on all ledgers across the network
- Smart contracts/programmable ledger - Transactions can be sent with rules attached
From Blockchain to Distributed Ledger Technologies
Today, we see a shift from the blockchain term to a more general one - the Distributed Ledger Technology (DLT). The DLT encompasses the blockchain attributes for shared and protected data but not necessarily through a chain of blocks. Its architecture can be more complex compared to Bitcoin’s blockchain due to its capacity to interconnect the different organizations’ nodes and implement advanced rights management.
DLT applications have become more pragmatic and solution oriented. They integrate the blockchain technologies with legacy systems in combination with Business Intelligence and Robotic Process Automation.
The adoption of DLT provides benefits such as reducing cost and risk and increasing revenue. Cost reductions are induced by the acceleration of processes, the rationalization of data stores and the reduction of parallel data operations. Declining risk opportunities result from the reduction in the number of intermediaries, shorter settlement cycles and data immutability, also, through better alignment of investment data among Asset Managers, Administrators, Custodians and Asset Owners. The revenue enhancement opportunities source from new products, bypassing the distribution platforms and create opportunities for goods/services in new markets.
The initial excitement for this new technology is shifting towards more mature, large enterprise projects.
The focus should stay on solutions brought by the Distributed Ledger instead of looking for areas where the technology can be applied. It has the potential to disrupt nearly every industry in the global economy. Understanding the technology’s inherent strengths (i.e., asset creation, asset transfer, data reconciliation) will be key for all successful initiatives.