Distributed ledger technology – It’s a term which many of us will be starting to hear almost daily.
Whilst initially distributed ledgers extended just to the rapid growth of Bitcoin using Blockchain (a form of distributed ledger technology) it is now becoming quite clear that this tech has the potential to change the face of most, if not all industries at some point in the future.
Has the potential impact been somewhat overstated though?
Depending on who you talk to, Blockchain could represent the single most important technological disruption of the 21st century. Being a cynical tech observer, I take much of this as hyperbole, but it must be said that with some creative thinking and effective application, the possibilities are there, and more than a little exciting.
Let’s take a step back first. What is a distributed ledger? How does it work? Why are some people so worked up about it and why should you care?
A distributed ledger is an umbrella term used to describe technologies which distribute records or information. Blockchain is a functional distributed ledger technology, it’s a type of DLT. It’s basically a database that is shared across multiple devices. Each device has an identical copy of the ledger and there is no central owner. Any changes made to the ledger must be agreed upon by each device. Once agreed, the changes are made across all devices. Importantly, because the information is shared across potentially hundreds or thousands of places, the group works together, identifying incorrect or falsified information. This makes the establishment of an agreed upon set of data vastly less expensive and time consuming.
It’s this reduction in the cost of trust which has the potential to shake up so many industries. By reducing our need for traditional trust establishment organisations such as banks and lawyers the door is opened for new ways of managing information and new companies to profit from delivering it.
Take contractual law for instance. Traditionally we have leant on the trust engendered by qualified and registered professionals, signed and countersigned in triplicate for even the most standard agreements. Using blockchain, there is potential to share and update an agreement across multiple devices, creating one version of the truth which cannot be hacked, falsified or otherwise tampered with. This takes away some of the need for expensive lawyers to achieve the same result.
The possibilities are vast. In banking, billions in back office costs could be cut by speeding up information sharing and settlement processes. In retail and manufacturing, there is huge potential for transforming supply chains and provenance, especially for items such as diamonds where knowing the point of origin is extremely valuable to the consumer. In the property sector, the traditionally paperwork heavy transaction process could be slashed, by reducing the need for the exchange of multiple documents between multiple parties. Even healthcare or other public-sector headache areas such as electoral systems where immaculate records are vital could be transformed.
It’s hard not to get excited by the breadth of the scope for change but it should be remembered that some of these applications are still some distance in the future and their full featured application may take some time. As we’ve seen with many other technological advancements though, adoption can be unexpectedly swift once a head of steam is created, especially if the potential benefits are great.
Over the course of the next few months I’ll use this column to look at some of these industries and applications more closely and examine where blockchain can impact sooner rather than later and vitally, who stands to profit.