Bitcoin and blockchain are among the most hyped but least understood technologies today. Some see blockchain as a tool for criminals; former US President Barack Obama warned last year against scenarios where “everybody is walking around with a Swiss Bank account in their pocket.” Others see a more utopian future where science fiction-like self-governing companies are so fiscally streamlined that bankers, accountants and lawyers are no longer needed.
Speakers and attendees at The Economist’s Finance Disrupted conference this week probed the future, the present, and the impact of bitcoin and blockchain. They warned that the technologies still face challenges evolving their structure and driving broad adoption but soon will have impact well beyond banking.
“We do not see blockchain as a threat,” said Jeremy Wilson, vice-chairman of corporate banking at Barclay’s Bank PLC. “We see an opportunity that is not just in the finance sector.”
Wilson, like many involved in blockchain, highlights the range of applications for a system that allows individuals to undertake instant global transactions performed without intermediaries. No banks or currency exchange services required. This solves a persistent problem in the Internet economy: the inability to send cash by Internet. “Cash is a bearer instrument,” said Adam Ludwin, co-founder and CEO of Chain, a company that helps financial firms build blockchain networks. “Because there is no such thing as a secure way to send cash, I must pay a bank or other intermediary.” This is particularly true in the virtual world, and commerce is hampered by the resulting delays. Some global transactions take can take days. Consumer commerce may have less friction, but transaction costs add meaningful percentages of drag to transactions. Bitcoin and blockchain still have transaction costs, but since those costs are scaled to computational factors rather than profit motives, they reward increased efficiency.
The implications of frictionless transactions at such large scale go beyond commerce and into the realm of how humans organize, several blockchain experts said.
“The real radical potential for this technology will bring a rethinking of governance systems,” said Ben Vickers, curator of digital at London’s Serpentine Gallery. “There is a direct connection to the radical history of organizational innovation in the arts – a Dada, Bauhaus or Situationist International – reimagined for the 22nd century.”
But how does it work?
In a currency based on blockchain technology, the most well-known of which is Bitcoin, everyone who has a copy of the ledger or books knows the ownership of any and all currency instruments (known as coins). Ledgers aren’t proprietary. Anyone can download a copy and become an active node holding the full ledger. There are currently nearly 6,000 bitcoin nodes active at any given time, according to Bitnodes. New bitcoins are “mined” mathematically, as are the blocks used to transact them, and currency transfers require agreement on a solution among a group of nodes.
The money laundering risk that Obama and others note comes from the opacity of ownership. Bitcoin owners are known only by their public key – a series of alphanumeric characters – and the coins themselves are identified by an anonymous single use address. There’s no individual identity at the end of the transaction, as there is in a traditional economy.
“The revolution is that we now have the ability to confirm digital identity, transfer ownership at high speed and build an immutable ledger recording that transaction,” said Nick Williamson, founder and CEO of Pythia, a company behind Credits, which provides purpose-build blockchains.
For all the potential, however, the blockchain community has faced criticism for the passionate disputes arising between rival implementations. “With something so new, you will have both intense competition and intense collaboration,” said Wilson of Barclay’s. “The industry is backing many horses now many will fail, but that is normal at this stage in a technology.”
Wilson urges the blockchain to focus on solving big problems. “To accelerate adoption, don’t apply blockchain to places and things that work pretty well,” said Wilson. “Focus where things are broken, ineffective or difficult to accomplish”
There are three elements necessary for blockchain to take off, said Helen Disney, founder of Unblocked, a new blockchain events and information hub.
These include training more developers, introducing new services as well as focussing blockchain on problems in sectors other than banking.
“The value of blockchain for trade finance is clear, but some of the best opportunities are in specific sectors,” Disney said, adding that blockchain technology would be particularly useful in the healthcare sector. Disney’s point is backed up in a survey done by Deloitte in December 2016 showing that US executives in the sectors of consumer products as well as healthcare had outstripped finance in terms of planning to integrate blockchain into their business. Other businesses can’t be far behind.