Blockchain, the technology behind crypto-currencies such as Bitcoin and Ether, is widely touted as a revolutionary system set to transform everything from money and banks to government and the economy. But beyond the questionable benefits of virtual currencies, evidence has been scant of real-world applications of the technology proving disruptive in the vast world business.
In essence, a blockchain is a giant database where everyone who takes part can see all the data, while the data is protected and verified by sophisticated algorithms. It creates an immutable ledger of transactions – a block – distributed across participants’ computers.
However, blockchain – also known as a distributed ledger – has yet to prove its worth outside the crypto-currency sector. One of the big questions is whether it is superior in most business cases to the many databases already available today.
In recent weeks, new attempts have been made to develop effective applications for blockchain, whose solutions are being launched specifically in rights management, marine insurance and central bank settlements.
Microsoft’s Solution for Creatives
Microsoft has teamed up with management consultancy EY to build a blockchain to manage rights and royalty payments for authors, songwriters, games developers and other creatives. At present, rights are usually managed offline, often by agencies and third parties that take a cut for tracking use of intellectual property and enforcing payments. Many creators struggle to obtain remuneration for their contributions to videos, music and computer games.
Microsoft believes its blockchain system will increase trust and transparency and speed up payments, reducing royalty distribution delays from as long as six months to just a single day.
The solution, which uses the Quorum blockchain protocol and runs on Microsoft’s Azure cloud infrastructure, will be deployed first in the gaming industry through game publisher Ubisoft. But EY says the system can be applied to any industry where intellectual property or assets are licensed and where creators are paid royalties. The system makes use of blockchain’s “smart contract†feature, which means that any contract – for example, an agreement to pay 10% royalties within 30 days – is executed by the software, rather than waiting for a business to comply.
Cutting out the Middleman
The system exemplifies the advantages of blockchain – its sophisticated software, security and algorithms cut out the need for a middleman. Because blockchain data are “immutable,†meaning they can never be deleted or altered, a complete record exists of all transactions, and contractual obligations are executed automatically.
Because all participants can trust the blockchain, there is no need for a third party to verify transactions or audit the stream of data. Blockchain’s algorithms mean every computer on the network carries out these exercises whenever a new transaction takes place. In a sense, it removes the need for trust by automating the process.
Another blockchain solution developed by EY is Insurwave for marine insurance, a joint venture with Guardtime. It creates a central source of data about risk profiles, claims and other information so the complex ecosystem of players involved in marine insurance can access accurate data. The companies claim blockchain will speed up claims decisions and calculate premiums more quickly.
Even central banks are testing out blockchain. The Bank of England is reported to be implementing a system to ensure payments for its real-time gross settlements process.
Correction and Updating Concerns
Some observers are yet to be convinced that blockchain will prove revolutionary for business processes. They argue that blockchain is essentially a giant database with security protection built in, but they question whether its immutability is really an advantage. If an entry is made to the ledger, it can never be altered, but what if it is mistaken, or was made under duress or in a moment of delusion?
The advantage of databases for many industries is precisely that information can be changed and updated in the event of an error. “It turns out there are very few systems that truly benefit from an inability to amend or update transactions,†says IT blogger and sceptic Ashton Kemerling. He also points out that bad actors could play the blockchain system, for instance making false claims about the provenance of a commodity that would then be unalterable, rendering the blockchain contaminated and discredited.
Another problem is the “proof of work†system by which a block of data is validated by participants solving a complex mathematical problem. The point is to boost security by slowing down the process of hacking the blockchain to reduce the possibility of using automation to crack the system. To achieve it, though, the mathematical problems require large amounts of computing power, making blockchain a hugely expensive, clunky system.
Blockchain solves the problem of trust between parties in a business activity, but is that really a problem requiring a solution? Most people tend to trust their banks, governments and insurers, and business people tend to trust each other. The three recently-launched systems should eventually shed some light on whether blockchain really is a game-changer or actually a solution to a non-existent problem.