Bitcoin has a bad rap as the preferred currency of drug dealers. But that isn’t stopping IBM and some of the world’s most conservative businesses from tapping into its technological underpinnings.
Specifically, Big Blue is interested in the blockchain — the mechanism Bitcoin uses to publicly record transactions. Today’s businesses each have their own records, slowing transactions and triggering problems figuring out who’s right when there are disagreements. But the blockchain approach is more cooperative by providing a consistent record that members of a network can see.
“The blockchain is about distributed trust,” said Arvind Krishna, a senior vice president at IBM Research’s Almaden lab, speaking Thursday at a 30th anniversary event.
That may sound as exciting to you as the development of double-entry bookkeeping more than 1,300 years ago, but it could bring big rewards to businesses by eliminating confusion and financial shenanigans. You should care about those problems, since they ultimately get passed on to the consumers through higher prices or slower shipment of the goods we want to buy.
The blockchain uses what’s called a shared ledger, a database spread across several linked computers so no single company has sole control. Encryption technologies govern data to make it clear who paid whom and why.
IBM plans to start using blockchain in its own financing business starting in September, easing difficulties that crop up in purchases involving a dealer, a manufacturer and a customer. The company says disputes bog down 25,000 of the 2.5 million transactions between IBM’s clients. Those disagreements could include which tax rate to pay or which products were actually ordered.
“We believe half the disputes can be resolved automatically,” Krishna said.
IBM likes blockchain but isn’t touching the Bitcoin project itself where the technology first arrived. Bitcoin has been plagued with multiple thefts, yo-yoing value, governance problems and an unsavory connection to the Silk Road drug marketplace.
IBM is steering clear of Bitcoin for technology reasons: Krishna doesn’t believe in one vast blockchain with anonymous transactions, but instead sees blockchain as useful for smaller networks of companies doing business together.
“I think there will be thousands of blockchains,” he said, not one, and not millions. On each, the identity of each party is clear, and encryption keeps transaction details private except to those who have permission to see details.
In July, IBM opened a blockchain research center in Singapore, one of the world centers for financial activity. It’s also the first contributor to an open-source blockchain software project called Hyperledger, offering 44,000 lines of code in January.
IBM and Microsoft offer blockchain services for those who want to embrace it. IBM has 2,000 partners evaluating it, too, and some like French bank Crédit Mutuel Arkéa have committed to using it. A company called R3 is trying to build a global blockchain ledger for a consortium of financial industry companies, too, announcing this week a successful test of two prototypes.