Blockchain Tech: An Emerging Industry? (Part 2)

Last week, the basics of the blockchain platform as well as the potential that it presents as an emerging industry were presented in the Digest. In this week’s post, the use of blockchain platforms and applications for the fintech industry as well as other industries that could see disruption due the introduction of the blockchain are explored. In addition, several efforts to spur the development of blockchain technologies and associated applications made by industry, government, and nonprofit organizations will be highlighted.

Blockchain and Fintech

IBM estimates that by the end of 2017, 15 percent of big banks worldwide and 14 percent of major financial institutions will be using some application of blockchain technology. Based on the findings of two studies – Leading the Pack in Blockchain Banking: Trailblazers Set the Pace and Blockchain Rewires Financial Markets: Trailblazers Take the Lead – IBM projects that early adopters will have significant economic benefits. J.P. Morgan Chase & Co. is already investing in R&D that would allow the bank to use a publicly available system for confidential transactions, according to the Wall Street Journal.

Proponents of blockchain highlight strengths of the technology that will benefit fintech and other industries:

• First, the technology may expedite the financial transaction process from multiple days to within seconds of the transaction, reducing overall costs.
• In other sectors, financial transactions will be replaced with other data sets that can be quickly transferred from one account to another.
• Better transparency and increased security from fraud for both banks and consumers.

Beyond the potential impact on back-office banking systems, blockchain technology could impact more-efficient regulatory compliance and increased transparency, according to a March 2016 report from PriceWaterhouse Cooper. In September, during a U.S. House of Representatives committee meeting, Federal Reserve Chairwoman Janet Yellen highlighted the potential of blockchain, saying she believed that innovations surrounding the technology could “have very significant implications for the payments system and the conduct of business.”

To achieve these goals, the fintech industry will need a skilled workforce of computer scientists familiar with the complex coding of blockchain technologies. These individuals will be tasked with developing and maintaining the security of blockchain-based platforms that address the specific needs of users.

They also will focus on developing technologies that protect the contracts and other assets before they are hosted on the blockchain platform and other applications to help transfer different types of assets to a code

Blockchain and Other Industries

Beyond its potential in fintech, blockchain technologies may impact several other industries that permeate daily life in the developed world. In January, Jamie Dimon, chairman, president and chief executive officer of JPMorgan Chase, highlighted its potential during a TV interview. Dimon said, “The blockchain is a technology which we’ve been studying, and yes it’s real, it can probably reduce the cost of doing business. If it proves to be cheap and secure, it would be adopted for a whole bunch of stuff.”

Among the industries that could see tech startups focusing on adopting and/or developing technologies using the blockchain platform include the Internet of Things (IoT), the gig economy and higher education.

IoT may realize the most potential of blockchain technologies and applications. In Blockchain-Based Architectures for the Internet of Things: A Survey, Marcella Atzori from the University College of London highlights that “if properly engineered, the blockchain technology offers a disruptive solution to the problem of security and privacy in the IoT environment.” Through the blockchain, Atzori argues that IoT will be better able to reach its full potential because it will allow the billions of existing and future devices to connect via large-scale blockchains that, with the proper application development, allow the technologies to interact in real time. Specific examples include:

• A refrigerator equipped with sensors and connected to the Internet could use blockchain to manage automated interactions with the external world – anything from ordering and paying for food to arranging for its own software upgrades and tracking its warranty; and,
• Small businesses could use blockchain to create trusted trading platforms among themselves with limited human interactions. In this scenario, small businesses would use a blockchain-based platform to address supply-chain issues regardless of the differences in their existing devices and systems.

For the gig economy, blockchain offers potential to emerging p2p platforms through more efficient and automated systems, without the high transaction costs or standards required by commercial platforms. One of the major roadblocks to the gig economy’s growth is protection against fraud and other disputes due to a lack of recorded individual agreements. Blockchain may offer the potential to help protect consumers/contractors in these p2p transactions by providing a decentralized platform that would host agreements between both parties, can be signed in real time, and protects users from fraud, loss, or theft. Instead of companies like Uber, Airbnb, and Lyft having to process transactions, a blockchain application would allow them to process any transaction or contract in real time, reducing costs and fees associated with the transaction.

In addition to these emerging industries, higher education could benefit from advances offered by blockchain applications. For instance, transcripts could be immediately available for individuals, employers or other institutions. Online-course certification could be achieved more economically and efficiently.

The online-publishing industry might be able to shift away from the current business model focused on macro-ads. Instead of focusing on generating revenue by macro-ads, publishers could use micropayments using a blockchain-based platform. In this scenario, the creator of the intellectual property (IP) would be able to sell their IP at a very low cost instead of giving it away and hoping to make revenue through advertising revenue. With the protection that a blockchain-based ledger offers, the IP owner would be ensured that their IP would be protected from mass-distribution.

Public, Private Efforts to Spur Blockchain Application Development

In a January 2016 paper from the United Kingdom’s (UK) Chief Scientific Officer, the UK government highlighted the potential uses for government including tax collection, benefits distribution and passport issuance. The UK Financial Conduct Authority has created a “regulatory sandbox,” where companies can test new concepts without submitting to the full compliance burden. The first round of testing included several blockchain startups and the second round opens for review on November 21.

The Chamber of Digital Commerce and 1776 – the Washington D.C.-based incubator and seed fund – launched the DC Blockchain Center, a new center focused on blockchain-based technologies. The intent of the center is to be “a resource for entrepreneurs and government agencies exploring blockchain products and solutions,” according to the Washington Business Journal.

In a statement, Evan Burfield – cofounder and co-CEO of 1776 – said "fintech is a challenging space for governments and their constituents…[DC Blockchain Center is] uniquely positioned to connect the dots for government agencies and drive massive scale success through our connections, resources and mentoring programs.”

In addition to supporting blockchain-based startups, the Washington Business Journal reports that the new center also will explore how regulators and government agencies can use blockchain and offer a space for collaboration on the technology between the public and private sectors. 1776 is already reporting interest from federal agencies looking to utilize blockchain for government-related activities, according to their press release.

Perianne Boring, founder and president of the Chamber of Digital Commerce, believes “the most effective form of advocacy is for the government to utilize and implement blockchain technology and to experience the benefits first hand.”

On October 3, the IEEE Standards Association (IEEE-SA) announced the Advancing HealthTech for Humanity™ virtual blockchain workshop, designed to enhance participants’ knowledge of blockchain technology and platforms and how they could benefit the healthcare industry.

In June, Enterprise Ireland, a national government agency in Ireland focused on growing the country’s innovation economy, unveiled a half–a-million-Euro fund  (565,860 USD) open to blockchain startups and those at the intersection of blockchain and IoT.

In communities across the globe, workshops, classes (both in person and online), bootcamps and other professional developments efforts have been launched to expand the number of blockchain experts with the potential to meet the growing demand of blockchain-trained computer science professionals for fintech startups and other efforts. For instance, this month, Deloitte is holding a blockchain bootcamp in Brussels for its employees, Coursera Princeton is offering a free class online, and IBM hosted a workshop that included more than 40 researchers dealing with blockchain governance issues.

If you want to learn more about blockchain and how it could affect your regional economy, but cannot attend one of these events, there are a growing number of resources available to you:

In proof we trust: Blockchain technology will revolutionise far more than money: it will change your life. Here’s how it actually works

Blockchain-Based Architectures for the Internet of Things: A Survey – University College of London - Center for Blockchain Technologies

How blockchains could change the world – McKinsey & Company

Distributed Ledger Technology: beyond block chain – UK Government Chief Scientific Adviser

Blurred lines: How FinTech is shaping Financial Services – PriceWaterhouse Cooper

Leading the Pack in Blockchain Banking: Trailblazers Set the Pace and Blockchain Rewires Financial Markets: Trailblazers Take the Lead – IBM

How the Blockchain is Changing Money and Business – Don Tapscott TED Talk.