Blockchain revolution can unblock world’s financial drains
IT’S not uncommon for revolutionary new technologies to remain hidden from view for years after initial arrival. Right now an innovation so powerful it could change the course of global financial and identification systems is about to explode into view.
It’s called blockchain and it is premised on a simple idea that goes back almost 500 years to the invention of double-entry book-keeping. Blockchain is a digital version of the ledger, but one in which all transactions are recorded in sequence, and shareable via any computer network.
The best-known example is Bitcoin, a “crypto currency” used to shop at a few hundred thousand outlets around the world. It exists purely as encrypted code, and is independent of any central bank. The result is that trust and security of the system reside in the system itself.
No wonder many banks and other institutions are dancing around it rather than embracing it. The technology underlying Bitcoin is a different matter. Every major bank in the world is exploring blockchain. They don’t have a choice, as they must become participants in digital disruption rather than be its victim. They can also maintain the role of the trusted third party in transactions.
“There will still be a role for a number of parties in future, but it will be different,” says Tanya Knowles, executive director of Fractal Solutions, the innovations division of Strate, which maintains the database of who owns what shares on the JSE.
“In a regulated financial system, as soon as you develop a private or commissioned blockchain, there still is a role to co-ordinate that ecosystem, from rights to the system and who regulates it, to the transparency of what people can see and can’t.”
Blockchain is tailor-made for share transactions. As a result, Strate is a participant in the South African blockchain working group, which includes the major banks as well as the Reserve Bank.
The potential impact goes beyond financial systems. It can, for example, address the trillion-rand annual global loss from diamond-dealing fraud.
“People want to apply the technology to other industries,” says Knowles. “The most recognised example is a distributed ledger for knowyour-customer compliance like the Financial Intelligence Centre Act.”
Fica requires all financial services operators to verify the identity of customers every time they open new accounts.
“Why authorise yourself at every single venue? If you put your identity on blockchain and a network of trusted parties, you only have to Fica once, as the database won’t be held by an authority that can be corrupted.
“Strate had the idea for 10 years, of creating a central database of Fica info, but it can end up like Home Affairs, where the system can fall over or have insiders going into the back end, so it leads to traditional problems of relying on one party. You’ve got to look at three or four different trusted sources.”
If blockchain is such an obvious solution, why is it taking so long to emerge from below the surface of its possibilities? The answer, ironically, is that its initial uses are all “so-what”.
“People say blockchain is a solution looking for a problem,” says Knowles. “The issue is it is being applied to systems that are not broken, like banking. But the big opportunities are lurking where systems are not working.”
Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za. Follow him on Twitter on @art2gee and on YouTube