Devised by the mysterious presumed pseudonym Satoshi Nakamato in 2008, blockchain’s immediate application was to serve as a transaction ledger for the cryptocurrency Bitcoin.

Nakamoto advocated a peer-to-peer version of electronic money, allowing for direct online transactions between two parties without the need for a third – relying on implementation of distributed peer-to-peer timestamp servers generating the necessary computational proof for the chronological order of transactions.

Transactions are validated under an agreed set of rules and then bundled with others into a new block on the chain, linked to the previous and subsequent one. Once transactions are recorded, they are permanent and unalterable – as well as being viewable by all those participating in that blockchain.

Working on the principle of all data being recorded, shared and synchronised across a distributed network of computers or participants, blockchain has moved beyond its cryptocurrency origins and now has practical applications from medical/legal records to insurance, telecommunications, energy, trade finance and more.

Yet, despite more than a decade of talk about how blockchain was set to disrupt and revolutionise numerous industries, the technology has yet to really make its mark on any big business – with scalability, security and regulatory concerns holding it back.

Big business use cases

Beyond cryptocurrency, trade finance is an obvious application of distributed ledger technology (DLT). Komgo’s platform, which officially went live in January last year, being a case in point. Put together by 15 banks and other corporates - including ABN Amro, Credit Agricole and ING - the platform digitises the commodity trade finance process, letting businesses automatically exchange documents across a wide range of solutions, speeding up the payments process.

Similarly, Mastercard and blockchain software provider R3 teamed-up in September 2019 to develop a new blockchain-enabled cross-border payments solution.

In the retail sphere, meanwhile, Walmart is rolling out Hyperledger Fabric’s blockchain solution to improve food traceability in its supply chain, principally by allowing certificates of authenticity to be uploaded to the chain to confirm not only a food’s provenance, but also allowing for it to be rapidly withdrawn if it becomes tainted.

Deloitte’s 2019 Global Blockchain Survey polled 1,386 senior executives across a dozen countries, revealing that 40 per cent were prepared to spend $5 million or more on new blockchain initiatives over the following 12 months, with 53 per cent stating blockchain had become a critical priority for their organisations.

Yet blockchain still faces a number of hurdles going forward – not least the lack of uniform standards.

Failing to keep pace

Regulations have failed to keep pace with the technological advancements, as national authorities struggle to legally recognise blockchain through legislation, while the wider community has failed to come close to any international agreement on a technology unconstrained by jurisdictions and geography.

Critics have complained about the privacy issues around being unable to remove things from the blockchain, while its security credentials have been called into question by the so-called 51% attack, featuring one, or several, malicious entities gaining majority control of a blockchain’s hash rate, allowing them to reverse transactions to perform double-spends and prevent other miners from confirming blocks.

Such takeovers are often the result of conventional methods such as phishing, meaning companies considering DLT must have sufficient risk management strategies and scenario planning in place.

With so many industry incumbents touting trials and partnerships in this area, it seems that failure to experiment with the technology - and delaying consideration of blockchain’s principal components of decentralisation and tokenisation - means being left behind when blockchain eventually matures.

One of the blockchain businesses moving from startup to scaleup in recent years is Ripple, which now counts more than 300 institutional customers using its RippleNet global blockchain payments network.

Marcus Treacher, senior vice president of customer success at Ripple, said growth so far has been down to “addressing a real industry problem; using innovation in blockchain and digital assets to build an effective solution to address the inefficiency of cross-border payments”.

He continued: “Unlike other companies that are stuck in the experiment stage, we’ve worked closely with financial institutions, FinTechs, governments and regulators on the delivery of our solutions – in fact, Ripple is the only blockchain company with customers using its products commercially."

Cautionary tales

Not all blockchain experiments have gone so well though, with Deutsche Börse Group and the Deutsche Bundesbank’s joint analysis of DLT for the settlement of securities - a project dubbed BLOCKBASTER - causing German Central Bank president Jens Weidmann to state that contrary to advocates claiming the technology is cheaper and faster than current settlement mechanisms, the process actually took longer, with higher computational costs.

However, Deutsche Bundesbank’s head of section payment systems Martin Diehl did note that potential advantages of DLT-based solutions “do not lie in settlement itself, but rather in post-trade and post-settlement processes”.

The joint database may significantly reduce the costs for reconciliation, he stated, adding that the use of smart contracts may speed up follow-up processes like corporate actions for securities. But, taking up Weidmann’s theme, Diehl stated that potential disadvantages for DLT-based solutions included high latency - i.e. the time required to generate the next block of transactions in the chain - and high CPU-usage.

While blockchain outcomes may vary, Capgemini executive vice president for banking and capital markets Sankar Krishnan reckons blockchain is here to stay and grow. “Because it has transparent data and encryption, it is arguably the best way we have today to process transactions that must be confirmed by members of a network.”

He argued that blockchain is very exciting medium for financial services and other regulated sectors “given that we can optimise it for audit, reconciliations, oversight, automation, data and other cost areas”.

Krishnan concluded: “Over the last three years, there have been significant transaction value processes on blockchains and the sky’s the limit on growth for 2020 and beyond.”

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