The noise surrounding blockchain over the past few years is a perfect example of the Gartner Hype Cycle. Blockchain rose quickly from innovation trigger to reach a peak of inflated expectations and is today crashing into the trough of disillusionment. But it would be wrong to write off blockchain just yet. The ride along the slope of enlightenment will be the really interesting one – where a growing number of industries come to grips with the technology and develop practical applications. I predict we will see some gamechanging uses for blockchain quite soon.
Blockchain is a distributed database, which means it stores the same data in many places. This has three main advantages: the data is hard to tamper with because it is recorded in multiple places simultaneously; the data cannot be erased, only added to; and there is no controlling or dominant party, which frees it from control of a single entity and allows it to exist outside any legal or company framework. These are the elements of blockchain that many are using to build a new “internet of trust”, and it is these features that will drive the creation of valuable applications.
Today blockchain is best known as a store for cryptocurrencies, with Bitcoin being the most famous – or even infamous due to the crash in its value since the start of the year. But there are many other applications across a wide section of the economy, from farming and manufacturing to the legal and accounting professions and even the retail and health industries. Some have been unsuccessful, which has partly undermined the technology’s credibility. For example, using blockchain to record anything that has a short life, such as perishable food, or creating property ownership records in countries with poorly function legal systems can cause more problems than it solves. The former doesn’t need the longevity of blockchain, while the latter risks recording false information that is very hard to put right.
On the other hand, blockchain is ideal for situations where trust is required between two or more parties, particularly when those parties have no reason to trust each other. (This is particularly true on the internet). This is at the heart of work we are doing at the École Polytechnique Fédérale de Lausanne’s new Centre for Digital Trust (C4DT).
Our first live project was to create a blockchain-based e-voting system for EPFL’s school assembly. It allowed decentralised voting, maintained anonymity and the distributed nature of the blockchain ensured a tamper-proof election in which multiple groups could verify the results. Looking ahead, the technology with enhancements could be used not just on campus but in sensitive national or local elections where suspicions about interference may be an issue.
Another ground-breaking project is being undertaken by the ho, a newly formed independent body in Switzerland founded by EPFL, banking software specialist Temenos, bank Swissquote and law firm Lenz & Staehelin. Its aim is to create common standards around issuing, distributing and trading securities using blockchain.
CMTA has founded a company called Opus Nigrum with the sole intention of setting a legal precedent in Switzerland whereby blockchain technology can be used to record share ownership. We are currently building the software and, once complete, the company directors will issue shares, transfer share ownership and record it all on a blockchain.
A similar exercise has already been completed by the World Bank when it worked with the Commonwealth Bank of Australia to issue the world’s first blockchain-stored bond, dubbed the Bondi bond, in August.
The rationale is that a blockchain cuts out the need for a third party, such as a notary or law firm, to register the ownership or transfer of shares. Using blockchain can therefore simplify the process and make it cheaper. CMTA hopes the Opus Nigrum exercise will provide a standard for how it should be done correctly in Switzerland and that developers will then seize the opportunity to create a robust, user-friendly platform. It’s a question of get it right once and roll it out.
Once set, the precedent would allow blockchain to be used not just to record share ownership, but for other financial transactions, too, from loans and bond issuance to more complex financial instruments. The elimination of the middleman might prove to be particularly attractive to small and medium-sized enterprises because blockchain will make it easier for them to access new finance and grow.
Applications like these promise to simplify transactions and democratise access to financial markets. It’s an exciting time, even if some of the hard, collaborative work to develop real-life applications for blockchain fails to grab the headlines.
James Larus is professor and dean of the School of Computer and Communication Sciences at EPFL and a member of the CMTA committee