Blockchain and the Future of Trust

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Experience teaches us that those who move quickly to embrace disruptive technologies benefit the most from them. The same will be true for the emergent technology called blockchain. As a powerful instrument of trust, blockchain enables parties to exchange goods and services with one another or make payments with far greater confidence. This provides distinct advantages to users as detailed in a new IBM study.

Throughout history, technological advances have radically expanded trust through innovations such as paper money, the banking system, the printing press, electronic payment systems, the internet and secure e-commerce. Each such advance has spurred economic activity by creating systems that instill the trust required for parties to engage with each another.

That’s why blockchain has captured the imagination of industry, academia and governments around the world. IBM is working on this exciting technology in collaboration with leading companies through the Linux Foundation’s Hyperledger Project.

Blockchain has its roots in the technology underlying the digital currency known as Bitcoin. However, its applications extend well beyond the digital realm to the physical world, with the potential to touch all aspects of the real economy.

Blockchain replaces antiquated and restrictive business practices — the “friction” that slows down global commerce — with a trusted distributed ledger secured by advanced cryptography. A permissioned network of participants protects the integrity of the ledger, and each party can only view the information they are authorized to see within a transaction.

Real trust happens when multiple independent parties keep their own copies of critical information. That’s what blockchain’s distributed systems allow. There’s no need for a single authority to govern the process, whether a central government or big bank.

Only parties involved in the transaction can see and make alterations to it. A permanent record of all transactions is set in “cryptographic stone” on the ledger, which means no one can rewrite or deny history.

In other words, it’s impossible to cheat with blockchain because everything is in the open to those involved and authorized to see. Risk is minimized in a system in which governance is truly shared. I can’t think of a better definition of trust.

International trade is especially ripe for blockchain disruption. Imagine a clothing store owner in New York City who wants to import some sweaters from China. Like most companies, the retailer today must first go to a bank to secure a letter of credit, and then show it to the manufacturer as a guarantee of payment.

Next, the sweaters are transported by one or more shipping companies through customs authorities in both countries before arriving at their destination, steps that require additional paperwork. Upon receiving the goods, the store owner contacts the bank and confirms that the terms of the agreement were fulfilled. Only then is the manufacturer paid.

This is a process that hasn’t fundamentally changed in 700 years, since the days of Marco Polo. Instead, why not put all of the parties in the transaction on a blockchain, where everything is visible and terms can be executed automatically?

A “smart” contract could state that when goods cross a specific point and customs authorities approve it, money flows back from the receiver’s bank to the sender’s bank immediately, no waiting involved. These contracts sit on the blockchain, with participants only seeing and signing the part that pertains to their role.

Such features make it possible to reimagine entire business ecosystems, as the code assumes many contractual obligations. By having a single version of the truth on the ledger, the cost of vetting potential trade partners will plummet, many disputes will simply disappear and the circle of economic participants will dramatically expand.

With blockchain, the need to “trust but verify” and all of the burden that entails will become a thing of the past.

Blockchain’s benefits are already being explored by many different entities who grasp the incredible potential of this technology. To name just a few:

  • The retailer Overstock won government approval to use blockchain technology for the global issuance, settlement and trading of corporate bonds.
  • Together with NASDAQ, the country of Estonia is now offering a blockchain based e-voting service that allows shareholders of companies listed on Estonia’s NASDAQ exchange to vote in shareholder meetings.
  • IBM is working with both the London and Japan stock exchanges to test blockchain’s application for trading in low liquidity markets.

Blockchain reduces cost, lowers risk, enables new business models and leads to more efficient transactions. It will dramatically expand access for new entrants into the global marketplace. For those willing to embrace this disruption, the future will indeed be bright.

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Senior Vice President and Director, IBM Research

Darek James

Very Interesting article Arvind! Thanks for sharing.

Raghavendra Brahmeshwarkar

To Marton Juhasz – The receiver of goods still has to okay, the intermediary bank, that all goods received are fine. The bank then triggers, the payment to seller/sender. I’m assuming, in the case of Blockchain, the act of just okaying the goods received from receiver/buyer, triggers the payment to the seller/sender.

Juergen Lang

realy good article

Rutger de Boer

The blockchain should be able to replace all kinds of registers of ownership (like the shipping of goods example). It would be much easier, faster and more transparent to control what you own. Also when selling/buying goods you would be able to transfer ownership yourself.

Andrew Terry

Well worth reading this. A very interesting subject, which will develop very quickly. Thank you

Jaime Moreno

As we explore the benefits of the Blockchain technology throughout the industry and clients, it would also be of interest to leverage the technology internally within IBM. There are a number of processes we used regularly that could be improved significantly with this technology. That should also help advance the development and deployment of the technology, and bring modern capabilities to our own processes.

Does anybody know of internal exploitation, beyond what IBM Global Financing is doing?

Dominique Rossi-Chevrel

Great article. Thanks!

Marco Zacchigna

Great post, Arvid!

Moreover, IMHO ultimate disruption will happen at the intersection with cognitive technology.

Take for example a simple contract: an agreement between parties, ruling a transaction.
Today a contract is written in plain language, and there is a great deal of work to be done to make it digestible for an automated (or semi-automated) processing, and drastic simplifications in any case are needed.

Now comes a time when you can have contracts happen… in code, natively (or so) understood and processed, allowing businesses to operate in a way which are difficult even to grasp at this point in time.

Surely regulators will have a say in it, but there’s no way to stop the future.

Marton Juhasz

Very interesting topic.

I have just one issue: Let’s say the deal is made but the goods are damaged or mistaken. Does it stop the payment procedure? How are these mistakes resolved, if instant payment is expected?


Thanks Arvind for the great article. My only doubt was concerning the fact where we say that blockchain removes the centralized control through the distributed ledger facility with access to all on the chain. However, don’t we still need a centralized process to manage who gets on to the chain?

Nhial Majok


I couldn’t say it better than you have, well written remark. People seems to have their own desires to rebrand what Bitcoin has clearly proven effective.

No doubt in 10 to 20 years, when most innovation without permission happens on the Bitcoin blockchain or etheurem if it survives permissioned blockchain willslowly become what intranet is.

Paul Rotter

Blockchain will be a household term before long. However, I would not characterize it as impossible to cheat. The blockchain makes it very difficult, but no digital system is immune from hacking/cheating, no matter how difficult it might be.
That said, this train is coming fast, so I’m happy to see IBM hopping aboard!

Himanshu P Saraswat

And what about security/control mechanism? how would there be check & control over Trades likes of narcotics, arms etc.. when “Only parties involved in the transaction can see and make alterations to it. “

Garry Hasler

I appreciate IBMs POV on the blockchain and how it definitely appears on the surface to be “all things to all people”. But I think if the focus is made too much on “blockchain” that many of the implementation opportunities could be missed.
Considering only permission, closed, centralized but distributed blockchains as the only possible solution is like saying an intranet is the only solution as they and the internet are the same because they both use TCPIP and routers.
The real opportunities are realized when systems are open, de-centralised and unrestricted where innovation and collaboration can improve the technology. Look at how linux has developed over the decades. Closed and permission-ed blockchains effectively behave like a shared database with an identity issuer assigning responsibilities and therefore database access information (eg rows/columns or tables) to the participants. This also has security implications since this configuration provides a “honey-pot” to any “bad-actors” looking for access to sensitive personal or even corporate information. Since each “node” in the closed blockchain has a complete copy of the blockchain locally which could provided potentially important competitive advantageous information to blockchain participants – right at their “finger-tips” – this acts as a very strong attractant for “bad-actors” at either the individual, corporate or even state level.
I do believe that blockchain can definitely improve business processes and reduce transaction times and provide an independent, immutable trust mechanism for both corporations and governments. But we need to not only focus solely on blockchain itself but also look to the largest and longest running public un-corrupted, censorship resistant, open and de-centralised blockchain currently in existence – bitcoin – for inspiration and lessons in implementation. Unlike the current SWIFT banking messaging/transaction system – bitcoin has never been “hacked” or corrupted nor has the network ever failed or been shutdown since it began in Jan 2009.

David Varga

A very interesting read.

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