When talking about fintech, I usually mention blockchain at some point. One of the most common questions I get in the break following my speech is; what is this blockchain everyone is talking about? Instead of explaining the theory behind the technology, I will try to recite some practical applications for blockchain technology I have come across that interest me.
I argued this summer that blockchain technology provides multiple possibilities for real-time payments through the distributed ledger by utilizing ISO 20022 as the message container combined with the blockchain technology as a ledger of ownership to confirm the change of ownership. This approach is backed by banks like WestPac, ANZ and Commonwealth Bank of Australia have experimented with the Ripple protocol for real-time cross-border payments integrated with existing payment infrastructures.
Blockchain also can be used to create smart contracts, which is another word for computer programs that can automatically execute the terms of a contract. This could potentially enable real-time verification of pre-defined trade conditions through digitized smart contracts. In addition to solving the friction related to large-value payments for global value chains, blockchain technology would, in theory, make trade finance available to SMEs that would otherwise find it difficult to obtain credit approval.
I had the pleasure of discussing blockchain with Deanne Kemp, CEO and founder of Everledger earlier this year. Everledger use the blockchain technology to prevent and combat insurance fraud. More accurately to record and track diamonds. Every diamond has a unique serial number, as well as a variety of other metadata points that make up a diamonds “digital fingerprint”. CEO Deanne Kemp states to TechCrunch, the perfect use case for the blockchain is most definitely when there is an immutable ID on a device that can not be changed and it is sitting within an immutable ledger. The value proposition to insurers is to reduce claims fraud as well as increase the chance of reclaiming stolen diamonds, since diamonds recorded on the chain could be retraced to its rightful owner, and diamonds are just a starting point. The Everledger platform could be used in recording and tracking almost every high-value item as long as it has a unique and unchangeable serial number or other identification that could be represented digitally.
One of the most interesting areas to explore from my point of view is the use of blockchain in the internet of things. IBM and Samsung is already working on a proof of concept for an blockchain-based framework for the internet of things. Just imagine how a blockchain-based framework could be utilized by self driving cars in an on-demand economy. The driver would identify and access the car via some kind wearable device containing a digital identity. Payments would be deducted automatically based on usage, and the car itself would keep track of all costs related to pay-as-you drive insurance, tolls, parking and power consumption.
Blockchain is increasing in popularity for incumbents in the financial services industry, and is considered as a candidate for the next disruptive technology. Nasdaq acknowledge bitcoin and blockchains as two separate innovations, and 22 top banks have joined a consortium led by R3 that is working on a framework for using blockchain technology in financial services. One of the key interest areas for the consortium is the creation of a distributed and open platform that all the banks have access to, reminiscent of how Norwegian banks have been collaborating on a shared infrastructure for years.