It may be loathed by US regulators, expected to fail by Warren Buffet and at the heart of the online “sin economy”, but Bitcoin has seen its value soar by 50% since the start of this year. The reason? Its technical underpinning, in the form of blockchain, is attracting significant investment and development effort and is being seen by many as the next big disruptive technology after the Internet. The implications for the data industry - and especially data owners - could be significant.
You don’t have to be an expert in distributed ledger technology, cryptocurrencies and encryption to realise something is going on when you see the likes of the UK Government, Deloitte and IBM all running experiments based around the blockchain concept. Since its invention in 2008 as a way of creating a currency with no issuing government or bank, things have moved on considerably.
Indeed a recently published paper by University College, London, Deutsche Bundesbank and University of Wisconsin-Madison identifed three distinct phases in the evolution of bitcoin and blockchain. Based an analysis of Bitcoin payments, it found that since the early proof-of-concept phase which led to the growth of the “sin economy” online, legitimate business activities are now dominating as the technology enters a mature phase.
More credibility comes from the UK Government’s own chief scientific adviser who, in January, published a report calling for experimentation with this technology, starting with the words: “Algorithms that enable the creation of distributed ledgers are powerful, disruptive innovations that could transform the delivery of public and private services and enhance productivity through a wide range of applications.”
Nor has the government delayed in exploring this opportunity. The Department of Work and Pensions has already begun a small trial in the North West using blockchain to send welfare payments via a mobile app. Apart from seeing what the benefits might be to recipients and the reduction of any mis-payment or fraud, running live trials is the only way to find out whether there is sufficient user acceptance and gain to make the effort worthwhile.
Deloitte has run a proof-of-concept in The Netherlands, called ArtTracktive, aimed at using blockchain to track the provenance of artworks - a market rife with the potential for fraud and risks to buyers. In the US, Deloitte has also announced 20 other prototypes, many of them in the world of banking and insurance.
But one in particular should get the attention of data and analytics practicitoners - Loyyal (formerly called ribbit.me) is a blockchain-powered rewards platform which started life as an employee incentive but could clearly move into the broader consumer loyalty arena. Once individual users start to gain experience of such blockchain-based systems, without the need to become decrypters or coders, usage and investment will really start to soar.
Data - especially sensitive information such as identity - could well become one of the services supported by blockchain. In theory, any exchange where the “currency” is personal data could run within a blockchain-supported system, removing the need for data intermediaries or the physical transmission of data, thereby reducing risk. That is a major opportunity and disruptive force which may be just over the horizon.