Beyond Bitcoin—Blockchain Is Coming to Disrupt Your Industry: Weekend Reading
Blockchain technology can potentially make a great many things more secure and accountable: financial transactions, micropayments, IoT applications, health records, corporate audits and more. Companies looking at digital technologies as enablers of competitive advantage and disruption innovation—technologies such as social, mobile, analytics, cloud, and cognitive technologies—should not overlook blockchain, says a report from Deloitte University Press. In the following excerpt, report authors David Schatsky, senior manager, Strategy, Brand and Innovation, Deloitte LLP, and Craig Muraskin, managing director, Innovation, Deloitte LLP, discuss blockchain basics and applications and why it is likely that over time many industries will feel its impact.
Blockchain, the “distributed ledger” technology that underpins bitcoin, has emerged as an object of intense interest in the financial services industry and beyond. Blockchain technology offers a way of recording transactions or any digital interaction in a way that is designed to be secure, transparent, highly resistant to outages, auditable, and efficient; as such, it carries the possibility of disrupting industries such as financial services, remaking business practices such as accounting and auditing, and enabling new business models.
The technology is young and changing very rapidly; widespread commercialization is still a few years off. Nonetheless, to avoid disruptive surprises or missed opportunities, strategists, planners and decision makers across industries and business functions should pay heed now and begin to investigate applications of the technology.
—A billion dollars in venture capital has flowed to more than 120 blockchain-related startups, with half that amount invested in the last 12 months.¹
—Thirty of the world’s largest banks have joined a consortium to design and build blockchain solutions.²
—Nasdaq is piloting a blockchain-powered private market exchange.³
—Microsoft has launched cloud-based blockchain-as-a-service.⁴
—Blockchain concepts, prototypes and investments are emerging in every major industry.
What Is Blockchain?
Consider this classic computer-science problem: A group of generals of the Byzantine army is camped with their troops around an enemy city. Communicating only by messenger, the generals must agree upon a common battle plan. However, one or more of them may be traitors who will try to confuse the others. How can the loyal generals reach agreement, secure in the knowledge that traitors have not misled them?⁵ The “Byzantine Generals Problem” has broad implications in a world of globally distributed digital commerce, which lacks the trust inherent in a face-to-face transaction between two parties who know each other.
Blockchain technology is a new solution to a more challenging version of the Byzantine Generals Problem that includes the ability to add participants over time. A blockchain is a digital, distributed transaction ledger, with identical copies maintained on multiple computer systems controlled by different entities. Anyone participating in a blockchain can review the entries in it; users can update the blockchain only by consensus of a majority of participants. Once entered into a blockchain, information can never be erased; ideally, a blockchain contains an accurate and verifiable record of every transaction ever made.⁶ It would have made for a very reliable way for Byzantine generals to exchange information.
If you’re familiar with the term blockchain, it’s probably because it is the technology that underlies bitcoin, the digital cryptocurrency that has been in the news in recent years, unfortunately often in connection with wildly fluctuating valuations and sometimes illegal activities.⁷
Despite the sometimes unsavory uses to which bitcoin has been put—a characteristic it shares with old-fashioned currency—the technology that makes it possible has a growing number of technologists, strategists and business leaders increasingly excited about a wide range of compelling applications for it. The public blockchain used by bitcoin, which anyone can join, is only one of several blockchain variants. An important variant that is rapidly evolving is private (or permissioned) blockchains, which limit participation to select entities.
The Benefits of Blockchain Technology
Blockchain owes its potential to its many valuable characteristics:
Reliable and available. Because a wide circle of participants share a blockchain, it has no single point of failure and is designed to be resilient in the face of outages or attacks. If any node in a network of participants fails, the others will continue to operate, maintaining the information’s availability and reliability.
Transparent. Transactions on the blockchain are visible to its participants, increasing auditability and trust.
Immutable. It is nearly impossible to make changes to a blockchain without detection, increasing confidence in the information it carries and reducing the opportunities for fraud.
Irrevocable. It is possible to make transactions irrevocable, which can increase the accuracy of records and simplify back-office processes.
Digital. Almost any document or asset can be expressed in code and encapsulated or referenced by a ledger entry, meaning that blockchain technology has very broad applications, most as yet unimagined, much less implemented.
These key characteristics of blockchain technology open the door to disintermediating third parties from myriad transaction types, lowering transaction costs, and increasing the potential for innovation in every major industry.
Blockchain Across Industries
There are dozens of potential applications for blockchain. Most attention has focused on applications in financial services, but as discussed in the full report, concepts, prototypes and investments are emerging in every major industry.
Read the full “Beyond Bitcoin” report to learn more about how blockchain applies to specific industries, including financial services; technology, media and telecommunications; consumer and industrial products; life sciences and health care; the public sector; and energy and resources; as well as horizontal applications, such as smart contracts, automated audit and improved cybersecurity.
For more business and economic research from Deloitte University Press visit http://www.dupress.com.
1. Sources: CoinDesk, “Bitcoin Venture Capital,” www.coindesk.com/bitcoin-venture-capital/, and Deloitte analysis.
2. Jemima Kelly, “R3 blockchain group adds 5 banks, brings in technology heavyweights,” Reuters, November 19, 2015,www.reuters.com/article/2015/11/19/global-banks-blockchain-idUSL8N13E36B20151119, accessed November 23, 2015.
3. Laura Shin, “Nasdaq selects Bitcoin startup chain to run pilot in private market arm,” Forbes, June 24, 2015,www.forbes.com/sites/laurashin/2015/06/24/nasdaq-selects-bitcoin-startup-chain-to-run-pilot-in-private-market-arm/, accessed November 23, 2015.
4. Jemima Kelly, “Microsoft launches cloud-based blockchain platform with Brooklyn start-up,” Reuters, November 10, 2015, www.reuters.com/article/2015/11/10/us-microsoft-tech-blockchain-idUSKCN0SZ2ER20151110, accessed November 23, 2015.
5. This description of the Byzantine Generals Problem is drawn from Leslie Lamport, Robert Shostak, and Marshall Pease, “The Byzantine Generals Problem,” ACM Transactions on Programming Languages and Systems Vol. 4, No. 3, July 1982, pp. 382-401, which also offers an analysis of possible solutions,http://research.microsoft.com/en-us/um/people/lamport/pubs/byz.pdf, accessed November 23, 2015.
6. This clear explanation is thanks to Mike Gault, “Forget bitcoin—what is the blockchain and why should you care?” Re/code, July 5, 2015, http://recode.net/2015/07/05/forget-Bitcoin-what-is-the-blockchain-and-why-should-you-care/, accessed November 23, 2015.
7. For example, see Jon Southurst, “Bitstamp reports hot wallet issue, tells customers to not deposit bitcoin,” CoinDesk, January 5, 2015,www.coindesk.com/bitstamp-reports-hot-wallet-issue-tells-customers-not-deposit-bitcoin/, and Yessi Bello Perez, “Is bitcoin volatility all in the mind?” CoinDesk, November 27, 2015,www.coindesk.com/bitcoin-volatility-mind/; both accessed December 1, 2015. For an overview of bitcoin, see Tiffany Wan and Max Hoblitzell, Bitcoin: Fact. Fiction. Future, Deloitte University Press, June 26, 2014, http://dupress.com/articles/Bitcoin-fact-fiction-future/.
Questions? Write to Deloitte CFO Journal Editor.
Follow us on Twitter @deloittecfo