What is Blockchain?
You may have heard of the digital cryptocurrency Bitcoin, an alternative digital currency that has attracted much speculation and press in recent years. Bitcoin is positioned as an alternative medium of exchange and it has attracted an enthusiastic following, but it has yet to resonate with a mainstream user-base. However, it is not Bitcoin that will be the catalyst for major changes in the years to come but blockchain, the underlying technology of Bitcoin that will result in profound implications in the transaction space and customer experience in the next 10 years.
Blockchain is a data technology that makes it possible to have a non-centralised digital ledger of all transactions taking place. This means that there does not need to be a central authority or data repository to record and store transaction history. Each participant can make secure amendments to the ledger cryptographically, meaning that their transaction is securely recorded and available for all other participants to view but not amend. A distributed consensus process approves transactions within the blockchain, ensuring that all transactions are valid. Bitcoin is a public blockchain, but blockchain can also be used as a private ledger for a variety of potential applications where there is a need for a digital fingerprint. The benefit of blockchain technology is that it eliminates the middleman and allows participants to securely transact with each other instantaneously without the need for a clearing house or settling authority, which can be time consuming.
What are the implications?
The implications of blockchain could be far reaching should the major financial institutions establish a de facto standard. While Bitcoin has yet to attract large mainstream adoption, with just a few million users worldwide, there are alternative blockchain applications emerging.
Are we likely to see the emergence of new, central bank backed currencies based on blockchain? Interestingly the central bank of Japan is one of the first financial institutes to consider making Bitcoin and other cryptocurrencies legal tender as an alternative means of exchange. As more robust blockchain currencies come into play, backed by large financial institutions, there could be a step change in the way that central banks manage their currencies, perhaps using a combination of physical money for small transactions and blockchain based currencies for online and business to business transactions. There is a compelling case for central banks to do this, particularly in light of recent news of offshore tax havens. A blockchain transaction history would allow banks and tax authorities to track every transaction, resulting in far more transparency of the monetary system. It seems this is the direction that many banks are heading and already a consortium of major banks, led by R3 CEV, a FinTech startup, have completed trials of 5 different blockchain technologies.
Although the initial utilisation of blockchain has focused on transactions, there are some emerging applications that are embracing broader aspects of customer engagement. These include a digital asset register for proof of ownership of digital content, secure digital voting systems, digital contracts, loyalty points, patient records, physical property register, anti-counterfeit measures, stocks and shares proof of ownership.
Examples already in development include Coca Cola who are looking to use blockchain in a loyalty application by allowing customers to buy their drinks through selected vending machines and accumulate points which are recorded in the blockchain. Boston based Voatz aims to use smart phones and blockchains to make elections cheaper, more transparent and to thwart voting fraud using a blockchain based voting system. Dynamis is a peer to peer insurance company that uses the blockchain to manage smart contracts. Circle is a peer to peer payment app that allows people to pay each other using their mobile phone with just a text message. The emerging applications for blockchain are growing daily.
Is Blockchain a risk or an opportunity?
It is early days for blockchain but, regardless of industry, the technology is soon to become a disrupter anywhere where transactions take place. It may be just a matter of time before blockchain begins to replace traditional transaction based systems with more secure, faster and more transparent solutions.
Blockchain has the potential to bring significant improvements to customer experience in terms of transparency and security, but it will also present a major challenge to traditional business models and organisations that don’t stay ahead of the game might be disadvantaged.