One of the fascinating technologies of this time is blockchain technology. What, in the first place, is blockchain? Blockchain consists of a list of records. Such records are stored in blocks. These blocks being connected with other blocks constitute a chain, called blockchain. Stuart Haber & W. Scott Stornetta, two American scientists envisioned blockchain in 1991. The first blockchain was conceptualised by a person known as Satoshi Nakamoto in 2008. The words block and chain were used separately in Satoshi Nakamoto's original paper, but were eventually popularised as a single word, by 2016.
A Blockchain is, in the simplest of terms, a time-stamped series of immutable record of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data is secured and bound to each other using cryptographic principles (i.e. chain). The name blockchain actually points to the two key components that make this system work: blocks and chains.
Blockchain is an immutable distributed ledger. It is immutable because if you put something in blockchain, it is hard to change, i.e., once recorded, the entries cannot be modified or deleted without other stakeholders noticing. Distribution means a network of computers. Ledger means excel table containing a lot of information. This ledger is constantly updated in real time.
Pillars of blockchain are: 1.Decentralisation. 2. Transparency (every authorised entity can validate a transaction) and 3. Immutability (nobody practically can change the ledger record)
KEY FEATURES OF BLOCKCHAIN: It is a democratised, decentralised, safe and secure eco-system. It is cryptographically secured, with no central authority; information is open for everyone to see. The transaction cost is zero, but there is infrastructure cost; no intermediary or middleman or third party can validate a transaction. If a hacker or nefarious node starts changing records in one ledger, all the other nodes would reject it since the new records would not match the data stored by everyone else.
USES OF BLOCKCHAIN: Blockchain can be used in both financial and non-financial industries. The distributed ledger technology with immutability can ensure transparency and efficiency in health sector, banking, supply chain management, cyber security, energy sector, insurance, music/media, research, retail, real estate, land registration, e-voting, identity management and many more.
These days everyone is talking about blockchain, and no one wants to be left behind. In PwC's 2018 survey of 600 executives from 15 territories shows 84 per cent of their organisations have at least some involvement with blockchain technology, 45 per cent believe trust could delay adoption, 30 per cent see China as a rising blockchain leader, 28 per cent say interoperability of systems is a key to success.
Gartner Inc. (global research & advisory firm in USA) forecasts that blockchain will generate an annual business value of more than US $3 trillion by 2030. It's possible to imagine that 10 to 20 per cent of global economic infrastructure will be running on blockchain-based systems by that same year.
The World Economic Forum (WEF) anticipates that 10 per cent of global GDP will be stored on the blockchain by 2025. That means global executives are preparing for this seismic shift, and are ready to completely back its implementation.
According to a research, deployment of blockchain technology can save banks more than $27 billion annually by 2030. Findings from this research, done by Accenture, say banks can potentially save more than $10 billion in annual cost saving by implementing blockchain technology in banking infrastructure. The report also says that blockchain can reduce bank infrastructure costs by almost 30 per cent.
Deloitte's 2019 Global Blockchain Survey was fielded in 12 countries (USA, UK, Germany, Switzerland, Luxembourg, Brazil, Canada, Israel, UAE, China, Singapore, HongKong), and the total number of enterprise respondents was 1386. According to Deloitte's Survey, 55 per cent of respondents say that blockchain technology has become a top five strategic priority for their organisations in 2019 (10-point increase over last year). 81 per cent respondents say they are planning to replace current systems of record. 77 per cent respondents say they will lose competitive advantage if they don't adopt blockchain technology. Overwhelmingly, respondents feel that blockchain based solution provides greater security than traditional approaches. 30 per cent respondents say that barriers to greater adoption in blockchain technology are: regulatory issues, replacing or adopting existing legacy systems, lack of in-house capabilities (skills & understanding), challenges in forming a consortium.
REGIONAL VIEWS ON BLOCK CHAIN:
India: The State Bank of India (SBI), India's largest government-owned bank, has announced that it will take the lead for launching a financial blockchain consortium.
China: China is preparing for the launch of a state-backed crypto-currency by removing online posts claiming that blockchain technology is a scam. An official of the People's Bank of China urged the country's commercial banks to step up their application of blockchain and embrace digital finance. The official's remarks come after Chinese President Xi Jinping said, China must make greater effort to develop and apply blockchain technologies and gain an edge over other major countries. This is a clear signal that the leader of the world's second largest economy is moving towards embracing the technology.
Singapore: The government has been highly supportive of free public blockchain platforms. In fact, monetary authority of Singapore has adopted a pro-blockchain stance with favourable tax treatments and public funding for blockchain development.
Bangladesh: Blockchain infrastructure in Bangladesh is still at a primitive stage. The good news is that the Bangladesh Computer Council has initiated a move to build a blockchain platform for government agencies. It will enable government agencies to utilise the platform to ensure security of critical data/info. But this private DLS (Distributed Ledger System) system is intended to provide service to government agencies only.
BLOCKCHAIN VS BITCOIN: Blockchain is not Bitcoin or Bitcoin doesn't mean blockchain. Bitcoin is a concept based on blockchain. It runs on blockchain. Bitcoin is a delusion but blockchain is ingenious. Blockchain exits beyond bitcoin.
CHALLENGES OF BLOCKCHAIN: The technology is not mature enough, and the concept is complex to understand. Building a blockchain becomes more complex when multiple stakeholders participate. In particular, companies with a presence in multiple countries and running multiple systems will encounter many issues before they can successfully adopt blockchain.
Lack of clear understanding of the technology is another factor slowing down the adoption rate. A large number of executives are unclear about what blockchain really is and how it is changing different facets of business. Existing business models and governance structures may need to be redesigned to comply with blockchain requirements. Moreover, regulatory framework is still missing for blockchain based business.
FUTURE OUTLOOK: Given that digital currency technology is still in its infancy, early movers will have an advantage in capturing market share, as an entire global eco-system of digital currencies is expected to materialise in the future. It is evident now that most banks are yet to release blockchain-based platforms into the public domain. They are at the stage of testing and are only observing the behaviour of the network within a tightly-controlled environment. It might take some time until a larger portion of financial institutions trusts the network to the point of complete adoption. Blockchain's benefits are best realised when different industry participants come together to create a shared platform.
Priyatosh Gupta is a Senior Vice President & Head of Imports at the City Bank Ltd., Bangladesh.