Global Glance: October 31, 2016
A quick look at intriguing international stories
By John Bostwick, Managing Editor, Radius
Blockchain Redux: How the Technology Is Being Used Today
Reuters reported last week that the first-ever international transaction between banks using multiple blockchain applications took place. The transaction was truly global in nature, involving an Australian cotton trader sending materials from Texas to the Chinese city of Qingdao. The interested banks were Wells Fargo and Commonwealth Bank of Australia.
The transaction is something of a breakthrough because traditional banks have been reluctant to use blockchain technology for fear of violating money-tracking and other regulations. Those fears persist even in the face of last week’s news. A Wells Fargo representative quoted by Reuters indicates that while his bank is committed to blockchain technology in the long term, “significant regulatory, legal and other concerns remain to be addressed.”
Some of the other concerns that have slowed adoption include the fact that multiple companies and consortiums are developing their own versions of blockchain applications. Some of those versions have unlimited access and some have restricted user bases, and no one platform has emerged as a standard. Furthermore, it’s not easy to overthrow any existing industry’s traditional methods. And even if some companies are eager to embrace the blockchain, third parties that make money off traditional transactions in finance and other areas won’t be eager to relinquish their perches and are sure to defend them where they can.
Readers who need a refresher course on blockchain technology can check out this February Global Glance post. After reading about it some more myself over the last couple of days, I’ve come to think of a blockchain (maybe misguidedly) as a kind of collection of Google docs that can be accessed by multiple users, though each doc has a unique identifier and can’t be altered unless all interested parties agree to the changes. It offers the promise of greatly reducing or eliminating the need for intermediaries in myriad transaction types, not just those involving cryptocurrencies like bitcoin.
I’ve also come to think that something revolutionary is afoot with blockchain technology. The prospect of using a transactional platform that is easily accessible, transparent, cheap and fast is highly intriguing. It’s intriguing enough, in fact, that the venerable Goldman Sachs is investing in the technology and recently filed a patent application for a foreign exchange trading platform that uses blockchain.
Goldman Sachs is far from the only high-profile blockchain investor. As we’ll see, there many other prominent companies developing blockchain technologies of their own. Last week’s cross-border cotton transaction, for example, was facilitated by a blockchain platform developed by R3, a tech company that that leads a consortium partnership with over 50 of the world’s leading financial institutions.
And there seem to be almost as many blockchain developers as blockchain investors and partnerships. They include Digital Asset Holdings, Gem, Ripple and Symbiont, in addition to R3 and no doubt many others. One of these — a San Francisco-based startup called Chain that’s working with Visa— recently gave a presentation about the promise of blockchain to Federal Reserve Chair Janet Yellen. According to a Bloomberg.com article, Chain last week “released to the public the 30,000 lines of open-source code that make up its Core Developer Series. Software developers, engineers, traders and executives can now build and test any type of application they think will help improve efficiency in their business.”
The Bloomberg article emphasizes that blockchain’s reach is not limited to financial transactions, declaring that “industries from finance to health care to utilities are experimenting with blockchains with the goal of radically changing how payments are tracked, securities and derivatives trades are processed, and health records are stored, to name just a few of the potential uses.”
To give a clearer picture, the rest of this post collects some ways in which various companies are using or planning to use the technology. You’ll see that many of the companies discussed are outside the financial industry, and therefore are relatively unencumbered by financial regulations that may inhibit the use of blockchains.
- The Wall Street Journal reports that Dun & Bradstreet, the services firm that provides clients with data on businesses, is testing a pilot blockchain system for its customers that will provide data on some 6,500 public companies, including legal name and address and any pending lawsuits. The article notes that “a possible future use of the system could include advisory services where Dun & Bradstreet suggests compatible trading partners for a customer based on analyzing data culled from the blockchain ledger about how the organizations do business.”
- The Bloomberg.com article already mentioned indicates that the mining giant BHP will use the blockchain to record scientific data. Another corporate behemoth — IBM — is using it to resolve vendor disputes, allowing parties to “come to an agreement and get paid within 10 days, instead of the 44 it often took with its old, largely manual system.” Finally, Startup Everledger, a diamond industry fraud-detection system, uses the technology to efficiently track over 1 million gemstones.
- The Financial Times says that Bank of China (Hong Kong) is testing the blockchain to facilitate the mortgage-application process by giving property valuations. Under traditional practices, when someone applies for a mortgage on, say, a house, a bank will hire a surveyor to estimate that house’s value. This system frequently leads to multiple banks hiring different surveyors to evaluate the same property. The Times explains that now, “blockchain can be used to create a decentralized network of banks and surveyors through which the latest valuations can be listed, verified and shared — in a matter of seconds.” A spokesperson for the organization building the system is quoted as saying, “The reason we focused on the property valuation is because there is less regulatory concern for this.” The system is scheduled to go live next month.
- Another Financial Times article describes how five of Europe’s largest insurers are studying the benefits of blockchain. The insurers are looking at a number of potential applications, including using the blockchain to facilitate claims processing and selling reinsurance through smart contracts. Smart contracts embed terms into code that can automatically prompt actions, such as paying auto claims when particular trigger points are reached.
- Fortune reported last week that Capital One is part of a group that’s testing the blockchain as a means of estimating out-of-pocket health care costs and tracking medical claims.
Businesses, it should be said, are not the only parties interested in the evolution and application of blockchain technology. Quartz writes that on October 18, the Chinese government published a 70-page report that is in effect a roadmap for developing blockchain technology in China, including a desire to establish related international standards that are influenced by Chinese organizations (and presumably by Beijing). Star Xu, who founded a Chinese bitcoin exchange, is quoted as saying that the report “shows government and industry leaders in China are getting serious about blockchain, which will help the blockchain industry.”
Blockchain technology is, in short, now much more than a means of trading bitcoins. And it may in time facilitate more transactions and transaction types than we can dream of.