If you had been paying close attention to the investor notes issued by RBS two years ago, you might have found something very surprising - the bank was looking to hire in 35 blockchain experts. Leaving aside the question of where it found that number of skilled practitioners in what even now is a minority domain, it was real evidence that major organisations were exploring how distributed ledger technologies (DLT) could support their business goals.
One company that did spot the announcement was MBN Solutions. Having tracked developments in the technology since, it organised Scotchain, Scotland’s first-ever dedicated blockchain conference on 11th November. As Susan Ramonat, CEO of co-organisers Spiritus Partners, said in her opening remarks: “Financial services is in a froth around blockchain.”
By the end of the day, it was clear that blockchain could be the solution to some difficult real world problems. It was also obvious just how much enthusiasm and advocacy practitioners have for the technology. It was even possible to believe in the vision of Bruce Pon, co-founder and CEO of BigChainDB, that “blockchain is a general purpose technology - and it is going to be bigger than the internet in the next 30 years.”
What is important in that statement is the view of DLT as a broad market solution, rather than a niche platform, since these are what really drive economic growth. To Pon, that means $100 trillion in value in the next 20 years.
Little wonder then that banks like RBS and managing consultancies like Deloitte - both speakers at Scotchain - have been running tests and building their competencies. Maria Khan, innovation engineer at RBS, gave an insight into the hypothetical proofs of concept which its blockchain lab has been working on. One of these is a multi-currency distributed ledger for clearing and settlement called Emerald using the Ethereum open source platform. As Khan said: “Everything is a ledger and money is a form of risk.”
RBS has joined the R3 consortium to accelerate its learning and development around blockchain. Khan pointed out how important this move is. “We are not trying to build something and brand it RBS. The real value for us is having enough companies on it,” she said. She pointed at Barclay’s payment platform Pingit as an example of how brand ownership can become a barrier - even though it can be used by non-Barclay customers, uptake outside of the bank’s base has been low.
Khan explained the core principles whch RBS has adopted in its approach to blockchain. “If you can use a database, use a database - it is a 40-year-old proven technology, whereas blockchain has not been tested in production,” she said. She also noted that the roots of DLT in the cryptocurrency BitCoin are a problem. “Avoid using digital currencies where the majority is owned by the few - 1,000 people own half of all BitCoins,” pointed out Khan.
A significant issue - and one repeated by others across the day - is that, “there is only so much fun you can have on your own in a blockchain.” What that means is that a closed DLT will not deliver much value - that only emerges once multiple players are involved. Another risk to avoid is replacing one centralised model with another. “Get rid of the man in the middle,” advised Khan.
This is one of the major attractions of blockchain to its advocates - that the value encrypted in the chain is validated by all of those using DLT, rather than being created by one central authority. Identity could even become a use case for blockchain that might solve the problem of the 1.5 billion inhabitants of the planet who have no legal identity, including 230 million children and 60 million who are stateless (in many cases because the country of their birth no longer exists). The United Nations is looking to resolve this by 2030.
Christopher Allen, principal architect at Blockstream, believes self-sovereign identity will be part of that solution and has laid out ten principles which need to be observed. “Everyone has an identity - there is not an administrative need for states to control that. The individual should be at the root of their identity with other proofs, like a driving licence, helping to verify that,” he told the conference. By creating identity within blockchain, it becomes portable, inter-territorial, transparent and persistent, rather than dependent on a state to issue and valdate it.
If that is a high-level goal which could see blockchain doing good for society, there were also more ground-level use cases on offer at Scotchain. Philippe Meyer, director of Avaloq Innovation, said: “When sharing a distributed transactional database it makes a difference because you don’t need to reconcile. You all share the same ledger of information and transactions.”
This is being considered carefully for its potential around smart contracts, where key information is currently often stored in Excel spreadsheets, and “programmable money”. Meyer gave the example of correspondence banking where money is being transferred across borders. Currently, this can take up to five days with high-risk transactions requiring even longer. In the process, Meyere noted, “there is evaporation of around $60 in every $1,000” in the form of fees and currency fluctuations. A blockchain solution could reduce the timeline to between three and six seconds with virtually no cost.
The collaboration required to put this type of solution together is one reason why the pace of change is relatively slow at the moment. Agreeing standards and approaches within a single organisation is not easy - achieving it across multiple stakeholders is a major challenge.
Kent Mackenzie, director and lead for the fintech practice at Deloitte UK, commented that, “blockchain is in its formative stages, only eight years into its journey. There is a huge amount yet to come.” That date of birth is based on the publication by Satoshi Makamoto - the name used by the invetor of Bitcoin - of the original paper about an electronic peer-to-peer cash system in 2008.
That paper laid out the core principles of DLT - a distributed database that is public and decentralised, relies on the user network to validate attributes written into the chain, and is synchronised right across that chain in real-time. “It creates a single version of the truth that is verified, updated and trusted across a network,” said Mackenzie.
While Bitcoin has been the leading use case, those same qualities have an appeal for other sets of value and information which can benefit from a new approach. Know Your Customer is one example within financial services, while provenance in the food chain is another solution which is already live.
There are problems which have yet to be overcome. As Pon noted, “blockchains don’t scale.” The underpinning technology is also quite exotic and does not sit readily within existing IT architectures, especially in risk-averse companies. Cultural adoption can be another barrier. One solution developed by BigChainDB was a proof of provenance for artworks, but a test in Berlin came up against resistance and failed as a result.
Despite that setback, Pon is an advocate with the passion of a visionary. He argued that, “it is rare to find a new business model. This one is not going to be based in Silicon Valley, it will be all around the world.” What Scotchain 2016 demonstrated was that, underneath the froth, there is a real body.