Banking

Blockchain and the reinvention of enterprises, ecosystems and economies

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Having grown up in India, I have first-hand experience on how complex real estate transactions can be to execute.

The number of participants that are required to be involved across banks, insurance companies, brokers, land registries, government tax authorities, and other intermediaries is incredible, not to mention the ever present danger that the seller of the property may not be the actual owner of the property being sold. (Title insurance does not as such exist in India).

This is not a problem unique to India as anyone completing the purchase of a home can attest to. The Peruvian economist Hernando De Soto believes that up to 5 billion people worldwide suffer from lack of title to their property that results in over $20 trillion of capital that is outside of the traditional financial services ecosystem.

Whether it is individuals looking to complete transactions involving multiple parties, or enterprises collaborating across multiple organizational silos, or cross-enterprise eco-systems looking to handle complex transactions across multiple jurisdictions, or governments looking to address the needs of its citizenry — whenever there are documents or financial transactions that are required to be confirmed, settled, exchanged, signed or validated, there are frictions that can be eliminated thereby unlocking material amounts of economic value.

Blockchain technology promises to reinvent enterprises, ecosystems and economies by enabling the reinvention of processes that materially eliminate such frictions.

The IBM Institute for Business Value (IBV) released a recent study ‘Fast Forward: Rethinking Enterprises, Ecosystems and Economies with Blockchains,’ which outlines how blockchains can reinvent business. The study examines how blockchains can vaporize frictions to bring new speed, efficiency and transparency to all levels of the business network from enterprises to ecosystems to economies.

Blockchains are built on shared ledgers where participants write transactions in near real-time to an unbreakable chain that becomes a permanent record of an asset or transaction. This is viewable by all parties in the transaction.

The study found five key attributes of the emerging blockchain technology including how it is distributed across the network, security, transparency, consensus-based nature and flexibility. Together these attributes have the potential to profoundly impact current business models over the coming years.

Consider how assets from cars to contracts, art to corporate bonds -– even identity-based assets, such as health, product provenance, or tax records -– can be shared, exchanged or transferred on a blockchain platform with greater efficiency and less risk to privacy.

As transaction costs plummet and the way organizations are governed matters more and more, blockchains will create a new distributed form of business governed and managed transparently through smart contracts that include agreed upon by-laws.

In the emerging blockchain economy, the role of third-party intermediaries to broker trust and/or reconcile will be increasingly called into question as we reinvent new processes that eliminate the need for such reconciliation and intermediation.

Blockchains are set to accelerate the flow of capital and the creation of wealth, our economies and interactions — both domestically and across geographic boundaries — and will become increasingly free of friction. New business models and services built and delivered on blockchain networks will accelerate access and liberate those that were once locked out of efficient value creation to fully participate in an “all-in” global economy.

While blockchains can powerfully improve businesses’ efficiency, trust and value, executives must carefully evaluate where blockchains can be leveraged to gain improved efficiency and support new business models. We recommend in our study that businesses answer these three questions:

1. How fast should I move?

2. Can we achieve network-wide accepted standards?

3. How can I scale with new revenue models?

Over the coming years Blochchain technology will enable substantial economic progress enjoyed and driven by a greater number of individuals, enterprises, eco-systems and economies.

To learn more about the new era of business, visit ibm.com/outthink.The cross-industry report is the first in a series by IBM’s IBV with further industry specific studies to come.

CTO & General Manager – GBS Strategy & Solutions

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