Beyond cryptocurrencies: what you should really care about is blockchain
Every major new technological innovation inevitably goes through the “end of the world/savior of the world” debate when it moves out from the shadows and enters the mainstream. It was true of the Internet, which changed the way we publish information, and it is also true of blockchain, which is changing the way assets are stored and transacted.
Much of the blockchain narrative has, however, focused on bitcoin and the many other cryptocurrencies that emerged over the last year, and it became decidedly divisive, driven by the unheard-of value appreciation and wild price swings these cryptocurrencies experienced.
What we have to remember is that many of these cryptocurrencies are in fact nothing else but use cases of the blockchain technology and, putting cryptocurrency speculation aside, it is this underlying technology that we should all pay attention to as that is what will transform how companies do business.
As Jim Orlando, Managing Director at OMERS Ventures who recently posted a LinkedIn article on this topic states, “Anywhere there is a database or a ledger that is shared or accessed by two or more groups, blockchain can play a disruptive role. This obviously applies to financial institutions, but also more broadly to manufacturers who manage their supply chain, and other industries.”
This said, it will take time for blockchain to become mainstream and fully deliver on its transformative potential. Numerous challenges still need to be overcome in terms of scalability, performance, standards and regulations, but let there be no doubt… it will happen.
Blockchain also offers an opportunity for Canada to lead the next big technological revolution, particularly when applied to the financial industry.
Consider our advantages. It starts with a strong, globally admired and tech-savvy financial community, one that is overseen by regulatory bodies that are taking an active role in supporting innovation. This is further underpinned by our federal government’s commitment to position Canada as a global innovator. And it continues with a growing, dynamic community of entrepreneurs and developers who are driving major innovations like Ethereum, a leading blockchain platform, built right in Waterloo, Ontario.
Collectively, this means that the opportunity for Canada to spearhead blockchain-fueled disruption and shape tomorrow’s financial industry, is ours to seize.
A quick recap
To fully understand the opportunity, it’s helpful to take a step back, and break down what blockchain is in its simplest form: it is an immutable digital ledger, distributed over a network, which records transactions without the intervention of any central authority. Transactions are entered once by the requestor and validated by the network. Cryptography and decentralization are used to keep the ledger secure and tamper-free.
This is a vast improvement over the legacy way of recording transactions where the need to have the different parties involved enter the transactions numerous times, creates the potential for error and fraud, and where the need of a central authority to validate the transactions, creates costs and inefficiencies.
In the financial industry, blockchain can reduce the time and infrastructure required to move assets around by eliminating redundancy and intermediaries, and it gives firms the ability to automate a vast portion of many simple and complex financial transactions, saving both time and money.
This is not just incremental change. It represents an entirely new way of managing assets and handling transactions.
Dipping a toe in the blockchain waters
So, if the business case is so compelling, why isn’t everyone jumping in with both feet?
For Orlando, there’s the fact that many blockchain applications are still in their proof-of-concept stage when it comes to implementation within large enterprises. He also believes some companies may opt to be fast followers once benefits are proven.
Peter Hargitai, Partner and Trust, Transparency & Blockchain Solutions Leader at PwC Canada, points out that initially blockchain and bitcoin were synonymous, leading many companies not to consider blockchain as relevant to their business. But now, as blockchain’s application is beginning to broaden significantly, he sees that changing: “We are starting to see a second phase of adoption of blockchain technology with lightning networks and interoperability between blockchain fabrics. It took many years for e-commerce to outpace retail and I believe it will be the same here.”
Positive announcements are also starting to emerge. Think of the Australian Stock Exchange’s recent announcement that it will replace its existing clearing and settlement system with a blockchain-enabled alternative. While such announcements help, it will take time before the trickle of initiatives becomes a flood. There are also other factors standing in the way of rapid adoption of blockchain solutions: comfort with the status quo, lack of understanding of the true scope of the new technology and then, as mentioned earlier, practical challenges that still need to be overcome.
Driving adoption through education
As Hargitai notes, “the potential for blockchain technology to radically transform current business processes is so vast that it is no surprise that some companies are at a standstill in terms of how they’re going to adopt it.” His advice for these companies is to educate themselves on blockchain and its implications, and then develop a strategy on how to respond, using outside expertise as appropriate.
Let it be clear that to take full advantage of blockchain solutions in any given industry, the various stakeholders of that industry will have to agree to work together, to invest together and adopt the platform as the uniform way of doing business. That means everyone from consumers, to manufacturers, distributors and regulators. This is more than just adoption jitters and many questions need to be answered. Sorting through them will take time and, if history is any guide, will be rife with skepticism, conflict and technological hiccups.
That’s why Hargitai’s advice to his clients to take the time to educate themselves and devise a strategy that will work for their needs and their industry is not only sound but critical.
Hilary Carter, Director of Faculty at the Blockchain Research Institute, agrees that education is a critical first step: “The more that business leaders understand blockchain architecture – and the trust that is achieved through decentralization, incentivized network collaboration, and consensus – the more they will understand its inherent benefits and how it could be applied to their business.”
The blockchain promise is massive, not different than what the Internet promise was. It will take longer to come to fruition than what many hope, there will be more hype and speculation, and there will be big disappointments… not different than what happened with the Internet. To be ready and avoid many of the pitfalls, the key word is education. Let’s make sure we take the time to understand, to devise the right strategies and to make the right decisions.
As for Canada, I truly believe we can be a leader and a hotbed in this space for many years to come: we have the skills, we have industry expertise and we have an increasingly global swagger. But we will only achieve this if we enable the right ecosystem, push adoption, sow our own success stories, export our know-how to the rest of the world and accept the risk of failures along the way. NEO will play its part in this journey…
NEO | President & CEO