What’s next for blockchain?
Everyone got very excited a few years ago about blockchain technologies, the ledger system that was spawned by the arrival of bitcoin in 2009. It allows the recording of transactions to be automated and completely trusted, as the ledger system is tamperproof. The resulting excitement was that this could, therefore, replace many systems of contracts that are paper-based with smart, digital contracts. This would be transformational as it would allow us to replace everything from clearing and settlement systems to passports to land deeds registries to supply chains that are paper-based, with a new software structure that would reconcile and manage everything without a human hand involved. Just in clearing and settlement, this was estimated to deliver savings of over $20 billion a year, due to the inefficiencies of the current systems.
This excitement then plateaued as firms started to realize the challenges of developing blockchain-based systems or, as it is better known today, distributed ledger technologies (DLT). Distributed ledgers are just that, a ledger system shared across the network. Everyone has a copy of the ledger and the ledger is updated in real-time automatically. In recent years, many firms trialed these technologies for their robustness and trustworthiness, and many firms concluded that the technology is not quite ready yet. For example, the Bank of England looked at using DLT to replace their Real-Time Gross Settlement (RTGS) system, the core system for monetary transactions across Britain’s banks, at the start of 2016. However, in May 2017, the Bank concluded that the technology was too immature and issued a statement saying:
“The Bank has decided not to build the renewed RTGS service on Distributed Ledger Technology, in light of its findings that the technology is not yet sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement.”
Those high levels of robustness are pretty important, as the Bank processes over £500 billion of payments per day, and it is clear that blockchain and DLT is still in early days. We could see that when one of the most popular corporate DLT systems, Ethereum, had to restart after a hack in 2016. At the time the hack occurred, the founder of Ethereum stated that you have to remember this is still “an experiment”. You cannot develop the next generation of systems for government and finance on an experiment.