Say Goodbye to the Middleman! How Blockchain is Disrupting the Trusted 3rd Party Industry

“In a report fromWorld Economic forum published in August 2016, it was predicted that 80% of the banks all over the world will have the Blockchain technology in use within the next year. Around $1.4 billion have been invested in the technology over the last 3 years and 90 central banks are exploring the uses of the technology.”

“The Crown Prince of Dubai announced yesterday that it wants all government documents on Blockchain by 2020.”

“This week, J.P. Morgan announced that it is developing its private blockchain network, Quorum, developing systems on Ethereum.”

“The Republic of Estonia e-Residency platform is partnering with Nasdaq to test blockchain for e-voting system to streamline proxy voting process.”

“Sydney Stock Exchange Completes Blockchain Prototype

“IBM Invests $200 Million in Blockchain that will enable sharing of IoT data in a secure private blockchain. (IBM, 2016; Crypto Coins News, 2016)”

“MedVault, the top prize winner of blockchain hackathon in November 2015, is a company that showed proof-of-concept that allowed the medical patients keep their medical history securely with rules created to control the access rights in various cases.”

These are just some of the recent headlines concerning the applications of blockchain. For financial services industry alone, the cost reduction in clearing and settlement costs are predicted to be reduced by 30% resulting in $16 billion saving industry wide (Autonomous, 2016).

Source: Autonomous Research

Blockchain is a distributed database that maintains a continuously-growing list of records called blocks that are secured from tampering and revision. Each block comes with its own timestamp and needs to be accepted by each party.

These blocks and records of the database are shared among the participating parties of the network. When a new transaction is to take place, an exact copy is sent to all parties to validate it before it can be executed. As there is a network approval, transactions become more secure and ultimately discard the need of a central authority to govern the transactions. (WSJ, 2016; Business Insider 2016)

The blockchains cannot be altered. For any revision to take place, it must be approved by all network participants. Even then, once it is approved, the revision will be taken note of and an  additional timestamp and information block will be recorded, attached to the original one.

Arvind Krishna, the senior vice president and director of IBM Research claims that depending on the approval conditions, the transaction settlement time could happen in an instant and save time time for transactions, that may have taken from 3 to 30 days otherwise.

1. An ID, called consensus identifier, “proof of work” or “hash”. It is a random set of encrypted numbers.
2. The proof of work from the previous block, which establishes the chronological sequence in the ledger
3. Transactions contained in the block. They may vary from 1 or hundreds or thousands of transactions.
4. Public key (identities) for the sender and receiver to identify the transfer of information.

The difference among the traditional databases and distributed ones is that in the case of the former, each party would keep their own transaction records, administrated by their individual methods – potentially having discrepancies among the parties involved in transactions. Furthermore, if a hacking attack were to occur, it would typically involve an attack to the whole system which often have one unified layer of security for access. Which translates to that once the hacker is in, they have access to all the information in there. In contrast to that, every single message and exact transaction of the ledger is shared among participants and each blockchain is encrypted by a complex algorithm. Thus, giving an additional layer of security for each transaction.

According to PwC view (2016), the blockchain technology has the potential to disrupt not only the traditional payments system but also an extensive variety of transactions.

The technology may be used in a number of industries and applications that require a verification by a third party or anywhere where records are stored digitally. Some of the examples from the financial industry are: transfer of digital and physical assets, verifying chain of custody and protecting intellectual property. As the technology encrypts every one block of transaction, it proves to be a highly fraud resistant system enabling the protection and authentication just about any type of transaction. In the times of cybercrime and rigorous regulatory requirements, such system has a potential of a revolutionary influence of the financial services industry.

Blockchain and Smart Contracts could disrupt just about any industry that currently makes use of a 3rd party intermediaries to ensure trust. For other industries, it may be a safe way to store information securely online – such as in case for governments or any sensitive enterprise information such as customer data or data collected from Internet of Things sensors. European Union is currently reviewing the use of blockchain technology for voting purposes, with Estonia taking practical initiatives to test the real life use of it.

The benefits for an average person are security, convenience and time savings. If you transfer money internationally, the transfer in future may happen within seconds, not days. If you would like to vote in government elections, file a tax return or review your medical records, all you would need is to authorize yourself in the digital environment, at your fingertips in your own time and comfort.

What are your thoughts on Blockchain technology? How do you think this technology will disrupt the industry?

Autonomous (2016) [online]
Accessed at: http://www.autonomous.com/fintech/d9335db1-bf1a-4ab2-8d1d-a36cb747a6aeBusiness Insider (2016) What is Blockchain [online]
Accessed at: http://www.businessinsider.com/what-is-blockchain-2016-3?international=true&r=US&IR=T/#and-it-could-create-a-huge-amount-of-value-for-the-top-wall-street-banks-thats-why-theyre-so-interested-in-the-technology-6Coindesk (2016) Dubai Government Documents Blockchain Strategy 2020 [online]
Accessed at:  http://www.coindesk.com/dubai-government-documents-blockchain-strategy-2020/Crypto Coins News (2016) IBM Invests $200 Million in Watson IoT Blockchain Development [online] Accessed at: https://www.cryptocoinsnews.com/ibm-invests-200-million-in-iot-blockchain-development/Fortune (2016) Building a Blockchain Ethereum Quorum [online]
Accessed at: http://fortune.com/2016/10/04/jp-morgan-chase-blockchain-ethereum-quorum/Futurism (2016) Say “Hello” to Quorum, J.P. Morgan’s Private Blockchain Network [online]
Accessed at: http://futurism.com/say-hello-to-quorum-j-p-morgans-private-blockchain-network/Garfinkel, H. (2016) Blockchain Startups That Get It [online]
Accessed at: https://www.linkedin.com/pulse/blockchain-startups-get-haskell-garfinkel?trk=prof-postGarfinkel, H. (2016) Why Should Financial Services Industry Pay Attention [online]
Accessed at: https://www.linkedin.com/pulse/why-should-financial-services-industry-pay-attention-latest-haskell-1?trk=prof-postGulf News (2016) Dubai Launches Blockchain Strategy to Become Paperless by 2020 [online]
Accessed at: http://gulfnews.com/news/uae/government/dubai-launches-blockchain-strategy-to-become-paperless-by-2020-1.1907790IBM (2016) [online]
Available at:  http://www.ibm.com/internet-of-things/iot-news/announcements/private-blockchain/Wall Street Journal (2016) CIO Explainer What Is Blockchain [online]
Accessed at: http://blogs.wsj.com/cio/2016/02/02/cio-explainer-what-is-blockchain/Pwc (2016) Q&A: What is blockchain? [online]
Accessed at: http://www.pwc.com/us/en/financial-services/publications/viewpoints/assets/qa-what-is-blockchain.pdf

Wall Street Journal (2016) J.P. Morgan Has a New Twist on Blockchain [online]
Accessed at: http://www.wsj.com/articles/j-p-morgan-has-a-new-twist-on-blockchain-1475537138World Economic Forum (2016) The Future of Financial Infrastructure [online]
Accessed at: http://www3.weforum.org/docs/WEF_The_future_of_financial_infrastructure.pdf