Of all recent innovations that have or will profoundly change the world as we know it, one will be more disruptive than all others: the Blockchain. With the potential to redefine the economic fabric of contemporary society, the Blockchain is an innovation that no business executive can afford to ignore. This article will tell you why.
In 1490, Luca Pacioli first invented – or maybe just described – double-entry bookkeeping. A relatively simple but powerful mathematical idea. Even today, 500 years later, the whole economic world order rests on the simple idea of double-entry book-keeping. From small shops to large corporations and entire nations, all the transactions of the world are ultimately recorded as Pacioli described. His invention truly redefined history, and kicked off the development of modern economics. The world economic order would be inconceivable today without the application of his foundational ideas.
Likewise, in the future, the world economic order will seem inconceivable without another innovative and disruptive idea, which was first described 2008. That idea is the Blockchain. The impact of the Blockchain cannot be understated and it will be similar in scope to Pacioli’s double-entry bookkeeping.
A Blockchain is an innovation that comprises many different aspects, the main ones being: mathematics, cryptography, computer science, networking and social engineering. It sounds complicated. It is complicated. It is difficult to describe in full. Any description would be partial and incomplete, like the proverbial story of the elephant and the blind men.
A Blockchain can be imagined as one, single digital ledger that is shared by the entire world. A Blockchain will record, or list, all transactions that happen between two participating parties.
The internet as we know it today is based on a technical protocol, the internet protocol, which excels at transferring information. We use it on a daily basis, when sending e-mails among us or when surfing the web. The internet protocol ensures that information is transferred from one computing device to another.
A Blockchain can also be considered as something similar to the internet protocol. However, while the internet protocol is designed to transfer information between networked peers, the Blockchain is designed to transfer value.
This is what makes the Blockchain so powerful: it defines how the most fundamental economic operation of all, a transaction, can happen in the digital world. These transactions are both secure and (mostly) anonymous. They happen in a peer-to-peer fashion, with no intermediaries. They execute (almost) instantaneously, without friction, while creating an immutable record of the event.
It is time to think about how Malta could create an ecosystem and an environment to foster Blockchain innovations
In brief, a Blockchain can be used to record anything of value to humankind. It is a new kind of medium, the medium to store and transfer value (rather than information).
Isn’t this related to the Bitcoin, used by criminals and drug dealers? The Bitcoin cryptocurrency is truly the first ever use of a Blockchain. One must be aware, however, that the Bitcoin is just one ‘application’ that is built on top of the Blockchain protocol. Like e-mail and the World Wide Web were two applications built on top of the internet protocol, there can be many more applications built on top of a Blockchain protocol.
While a few people used the Bitcoin with malevolent intent, we must not think in terms of guilt by association. Instead it is necessary to clearly distinguish between the Bitcon (one application) and the Blockchain (the underlying protocol).
The Blockchain must not be considered as something bad, because of instances of misuse of the Bitcoin. It is important to think about the Blockchain in terms of what good it can bring to the economy.
Ignoring or dismissing the Blockchain on the grounds that the Bitcoin has witnessed instances of criminal use, would be akin to ignoring the whole of the internet (specifically the internet protocol) because at times e-mail has been used in committing crimes.
In hindsight, that would have been very silly. Had we done that, then today we would not be using e-mail; but we would also not have given the internet protocol a chance to develop all its other applications. We would not be using the World Wide Web, Skype, Youtube, Google searches, Facebook, AirBnb, online banking, location services, crowdfunding, and the coming Internet of Things.
Likewise, dismissing the Blockchain today would prevent a number of new, unforeseen and innovative applications to develop.
The new technological opportunities brought about by Blockchain will be discussed at the forthcoming Finance Malta’s annual conference entitled ‘Malta’s Financial Services Industry – Taking the Next Quantum Leap’ which will be held on May 18 at the Hilton Conference Centre, St Julian’s.
There are two primary reasons (among many more) why the Blockchain is so powerfully disruptive, besides the key innovation that it is a medium for the transferal of value instead of information.
First, all transactions happen in a peer-to-peer fashion. This means that trusted third parties become dis-intermediated. As an example, people can transfer value directly between themselves without the need of the services of a financial institution.
Any business where there is a third party, or even an authority, intervening between two transacting parties can potentially witness large-scale dis-intermediation. The degree of disruption is substantial, and can involve business models, business processes, supply chains, customer relationships and more, in the global economy.
Second, the records stored in a Blockchain become permanent and immutable. A Blockchain is, in principle, a public record keeping system that can be inspected by anybody concerned. A Blockchain keeps tracks of timestamped events, and this provides an unprecedented degree of transparency and auditability. A Blockchain becomes effectively a single source of truth. This has vast implications in term of auditing, transparency, regulatory compliance, tax collection, and so on.
While this article has only scratched the surface of this topic about the Blockchain, hopefully it will have conveyed the message that this innovation is really important for any business – even for humankind as a whole – and that it will never be too early to start thinking about how the Blockchain could affect your own business.
The Blockchain can offer enormous business opportunities. While most of the innovations of the internet have been developed in Silicon Valley, it is time to think about how Malta could create an ecosystem and an environment to foster Blockchain innovations; it is time to think how Malta could become The Blockchain Island.
Steve Tendon is managing director of TameFlow Consulting Ltd. He is also a senior executive management consultant, adviser, speaker and author and holds an MSc in Software Project Management from the University of Aberdeen.
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