Every now and then, a technology emerges with the potential to drive sweeping change. The personal computer. The Internet. The smartphone. Cloud computing. They reshaped industries and transformed ways that people and businesses work, connect and collaborate.
Another of these exciting breakthroughs is making its way onto the list – the blockchain. In short, a blockchain is a security-enhanced ledger distributed across a peer-to-peer network that can store a constantly-expanding collection of data records. It sounds technical, but a blockchain has three basic properties:
- Replication – it automatically synchronizes changes to the ledger across the full network;
- Consensus – it assures that every participant has an exact copy of the ledger;
- Permissions – it ensures that participants can only see items in the ledger they are involved in.
But let’s step back from the technology for a second. As the head of IBM Research so effectively pointed out, blockchain is a really big deal. Even in the Internet age, many of the ways we manage agreements and transactions haven’t evolved. We are, to quote Dr. Krishna, “pushing old procedures through new pipes.” The blockchain can change that, by significantly accelerating business processes and cutting the cost and complexity in how things get done.
Let’s also be clear: blockchain is not Bitcoin. While it is the basic infrastructure that enables the (infamous?) digital currency, the potential applications for blockchain extend much, much further. There are clear applications in financial services – where blockchain could be used to accelerate the settlement of transactions by boosting efficiency and cutting out red tape. And that’s just the beginning. Manufacturers could use blockchain-enabled systems to manage their supplier networks, ensuring all component providers have an accurate list of required parts combined with clear shipping schedules and automatically logged departure and delivery records.
And then there are taxes. One day, blockchain could potentially eliminate the need to file annual tax returns by automatically and accurately recording the financial transactions of individuals and businesses, implementing the tax code instantaneously and transferring money where needed. Because of the inherent transparency and security of the technology, all parties would have a full record of the system and trust in its operation.
IBM has been working with a community of partners to make the blockchain ready for business, and we see tremendous potential. Over the past year, interest in the technology has surged and policy makers find themselves racing to understand its implications. As one of my fellow IBMers recently shared in testimony before the U.S. Congress, there are several basic considerations for leaders to keep in mind, and concrete steps they can take to unleash blockchain as a driver of innovation and economic competitiveness.
When evaluating the potential of blockchain, policy makers should focus on and pursue models that are:
- OpenSource – to establish a common foundation for blockchain systems, enabling interoperability and allowing businesses and organizations to build applications on top of that foundation for specific industries or use cases.
- Trusted – offering full transparency and replication of data across the entire network so all participants, from parties in a transaction to auditors and regulators have complete visibility into the ledger contents.
- Secure – in making blockchain ready for business, IBM and others are securing it with cutting-edge encryption, to which only authorized participants would be given keys. The nature of the network itself adds an important layer of security, as an attempt by one party to enter questionable data into the ledger could automatically become known to all other parties.
- Scalable – to be truly effective, the ledger code and the computing infrastructure it runs on must be sufficiently robust to manage massive volumes of transactions across immense networks of participants.
Blockchain is not just a business tool. It also is a way for governments to fundamentally redesign how they serve their citizens. Public institutions should play a role in realizing a blockchain-enabled future by:
- Using blockchain – to drive broader interest and acceptance, Government should act as an early adopter and start deploying the technology for projects like voting, recording land registries, managing immigration and more.
- Investing in research – to make sure blockchain technology is robust, secure and scalable, while exploring the ethical and social implications of potential uses and the costs and benefits of adoption.
- Adopting thoughtful regulation – that strikes a carefully-considered balance between appropriate use and not implementing a rigid regulatory regime that dampens innovation.
- Establishing standards for security and privacy – in close partnership with industry and academia to create appropriate standards for the integrity, security and privacy of distributed ledgers and their contents. Those standards should be reflected not only in regulation, but in the software code itself.
Like the inner workings of the Internet, blockchain is complicated technology. But its broader implications and transformative potential are every bit as real as the digital connections that have reshaped our world. IBM has always helped governments understand and implement cutting-edge technology. It’s a role we welcome and take very seriously.
Now, as policy makers and elected officials consider how best to use and encourage yet another exciting innovation, IBM will once again step forward as a source of both business and technical expertise. It’s a conversation we’re excited to have.