Blockchain or distributed ledger technology is being promoted as a potential solution for a range of problems in the digital economy. Coindesk estimates that total venture capital investment in Bitcoin and blockchain startups exceeded US$1.1 billion globally by the first quarter of 2016.
Distributed ledger technology (of which blockchain is a subset) uses cryptographic tools and a distributed consensus process to create a significant innovation in traditional record keeping. It has three main features namely Veracity; multiple copies of the complete historical record of ledger entries which are verified by consensus (bogus entries are identified and eliminated if failed to be verified), Transparency; public record activity that can be seen by all market participants, and lastly, Disintermediation; operates using a peer-to-peer network rather than a specific central organization.
Successful applications will be the ones which effectively harness blockchain’s value drivers which are underpinned by two core functions that the technology offers, record-keeping; a historical record which cannot be modified after it is created and is difficult to tamper with, and transaction-settling; as a means of making and settling transactions without the need for central authority.
Blockchain technology has been used to facilitate payments and settlements, offering near real-time transfers of funds and settlement time reduction. As an example, the Ripple network is now facilitating almost 30,000 currency trades daily by removing the need for a trusted intermediary to monitor transactions which in turn reduces the costs usually associated with a third–party intermediary. Other notable examples of industry development are CoinJar which operates on Australian Bitcoin trading platform, and ASX who is pursuing blockchain technology to reduce the reconciliation related expense of keeping multiple data records.
Applications of blockchain for payments and settlements can be simplified as enabling organizations or individuals to transact without the intermediation of a third party. Beyond that, the application as a mechanism has been in banking, where reconciliation of records relating to banks can be costly and time-consuming when performed via traditional channels. In Australia, three of the Big 4 banks (Commonwealth Bank, Westpac, and NAB) have joined the global R3 CEV consortium which aims to design and deliver advanced distributed ledger technologies to global financial markets.
The application of blockchain as an immutable ledger can improve transparency and create trust between organizations or different parts of the supply chain. For example, Sydney based Full Profile is piloting distributed ledger technology in the grains industry. It will provide field-to-plate provenance tracking so that both buyers and consumers can be certain of where their products come from. It will also help growers and traders with smart contracts ensure that payments are made as soon as goods are delivered or ownership changes.
This is just a part of the application of blockchain technology. It has an immense potential to revolutionize all aspects of the industry especially the financial world; with faster, easier and transparency combined, paving the way to more potential to come.