A lot is possible on the blockchain. But, the blockchain does not have power to solve every problem thrown at it.
Diamond provenance protection, asset trading, land title registry, passport issuance, smart contracts, currency... you name it, there is already a startup building the solutions for it on the blockchain (the decentralized public ledger that underlines most cryptocurrencies, including Bitcoin). And the list of possible opportunities that the technology has to offer seems to grow longer each passing day.
As a matter of fact, it is now almost a given that at every Bitcoin meetup, conference or forum you attend, there will be someone who sees it as the right place to let the world know of the new blockchain innovation they have been working on. What's more, the impression that there is nothing that can't find a solution from the distributed ledger technology has done more than take hold in the Bitcoin community. It is now catching on with the mainstream financial institutions, technology companies and even beyond.
Blockchain Has Become a Must-have Topic in Fintech Talk Shops
First, it slowly became something that must be discussed at every Fintech meeting, conference or forum. This is in spite of the fact that this is a technology that is very complex even for technology-savvy people to understand. Nevertheless, bank executives, entrepreneurs, and everyone else is buying the idea that it is not only a cool technology to explore but also that there is no future for any industry devoid of it.
Ironically, though, executives of mainstream financial institutions can't resist exorcising its most successful application, Bitcoin, from the discussions. This is, of course, understandable. You cannot expect it to be lost to them that Bitcoin is a formidable, direct competitor to what they offer.
Both the birth and success of Bitcoin have been laid on the doorstep of the greed reigning within the banking industry around the world. And, indeed, Satoshi Nakamoto, the founder, could not find a better time to publish his white paper on the decentralized peer-to-peer financial system than during one of the worst bank collapses in 2008.
To balance between the admiration for the blockchain and the dislike of the cryptocurrency, players in the mainstream financial industry have found their refuge in the mantra 'Blockchain is good, Bitcoin is bad.'
Involvement Through Joint Projects, Internal Capacity Building and Investment
Public relations aside, there is already a lot of action to back up the rhetoric about the blockchain. On 15 September 2015, nine financial companies came together to form R3cev, a consortium to research and develop private blockchain financial system solutions. The list of backers included BBVA, Commonwealth Bank of Australia, Credit Suisse, UBS, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland, State Street and Barclays.
By the start of the New Year, the number of financial companies that had joined the project had climbed to over 40. The idea behind this project is for mainstream financial institutions to benefit from the blockchain technology without them losing control of their businesses.
At about the same time, Linux Foundation was launching the Hyperledger project. This has also attracted support from about forty financial institutions and technology companies including ABN AMRO, Accenture, Wells Fargo and Digital Asset Holdings.
These joint projects are over and above individual engagements by the mainstream financial and technology companies with the technology. This includes investments they have made in blockchain startups as well as the internal blockchain research teams they have formed.
Last but not least, there is a stream of venture capital into startups building solutions on the blockchain. In the first three months of 2016 alone, about $140 million were invested in various Bitcoin and blockchain startups.
Every investor now wants to be part of the technology. Indeed, everyone wants a piece.
We Didn't See the Internet Coming; We Can't Miss This One Too
Perhaps one the major forces pushing everyone to adopt the blockchain is the similarities that have been drawn from the Internet experience. It is a widely carried message that the technology is where the internet was in the early 1990s.
And of course, everyone knows how only a few saw the potential in the Internet and how things turned out later. Nobody wants to be left behind this time around when the train leaves the station.
But, in the middle of the hype, excitement, and fear of falling behind, one fact is likely to get lost; and that is the viability of the technology as the solution that can be thrown at every social, economic and political problem that humanity faces.
Of course, there is no question that distributed ledgers will help institutions, businesses, and even governments keep track of data in a way that is safe, easy to use and without a lot of intermediaries.
Nevertheless, it is only right to appreciate that there are things that the blockchain cannot do. It is far from a "one size fits all" solution.
Does the Blockchain Have the Power to Change Everything?
For instance, smart contracts are self-executing contracts made possible by the blockchain. One part completes only after the other has met specific obligations. In certain cases, however, such as where a change of property ownership takes place, the need for law enforcement agencies is not completely removed - and will hardly ever be.
Take a situation where you buy a piece of land from a seller. The blockchain would facilitate the swapping of the price and the title between you and the seller. However, if the seller refuses to vacate, then you might need to make a trip to a court of law to have the contract enforced. This might make the smart contract pointless in this case.
Another example is the use of the blockchain to track ownership of diamonds. Having the unique data of a particular diamond and its engraved identification number hashed and stored on the blockchain makes for easy referencing. This is what Everledger, a London-based startup, is doing.
Obviously, IDing is a critical part to the success of this service. If it is faulty, then the blockchain can really do as much to help combat theft and fraud.
Think of a situation where a stolen diamond is cut and thus given a new identity. The old identity on the blockchain won't really serve any purpose. Everledger has insisted, in various forums, that fraudsters will be economically disincentivized to cut stolen diamonds, because that results in wastage and lost value.
However, it is also true that they will still gain even if they cut them. The reason being that fraudsters do not incur any prior significant cost to acquire the diamond.
Indeed, a lot is possible with the blockchain. It seems set to revolutionize different aspects of society, starting with finance, ecommerce, asset management, and even public administration. But, it might be an overstatement to argue that the distributed ledger technology has the power to solve every problem thrown at it.