On Halloween 2008, a mysterious paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System appeared on a cryptography mailing list. Its author used the pseudonym of Satoshi Nakamoto and to this day, no one is sure of his or her true identity. Nevertheless, the revolution the paper unleashed has been quite real.
While the objective of the Bitcoin paper was to establish an alternative currency—an idea that had great resonance in the midst of the global financial crisis—it soon became clear to many that the underlying technology, called blockchain, could be of even greater utility as a distributed database.
Yet it is only now, more than a decade later, that the vision is finally beginning to take shape. To understand what the future of blockchain could look like, it’s helpful to look at IBM ’s recent initiatives to build communities around peer-to-peer networks in financial services, identity and supply chain.
In financial services, the company has created the IBM Blockchain World Wire, which facilitates cross-border payments. Typically, a transaction that crosses borders needs to go through a number of intermediaries, which takes time and adds costs. Blockchain technology allows these transactions to take place almost instantaneously and at far lesser cost.
The company is also working with SecureKey to develop a digital identity system in Canada. The system is designed to allow consumers to develop digital identities that they can control. For example, if you have already verified your identity with say, a bank, then you can then use that verification to help you get a new apartment or create a new account with a utility.
Perhaps the greatest opportunity for blockchain technology is in helping to streamline supply chains. In fact, a 2013 study by the World Economic Forum found that reducing back-office friction in international trade could increase GDP by nearly 5%. IBM has two major efforts in this area. It partnered with Maersk to create TradeLens, which aims to digitize global shipping and created Food Trust that focuses on agricultural products.
Unlike the original vision spelled out in the Nakamoto paper, these initiatives don’t use a proof-of-work system for verification, but are permissioned blockchains in which each participant is identified and known—and therefore accountable—to the others in the blockchain network. Essentially this verifies members before transactions take place, much as Global Entry and TSA Pre do at airline security checkpoints.
To understand where all this is going, it’s helpful to look back to the evolution of the Internet. At first, it was merely a network that connected research labs to reduce friction and increase collaboration. Later, it became public, and “walled garden” services such as Compuserve and America Online connected ordinary people to larger networks of information.
Yet the real value was unlocked when the Internet started connecting networks together. That’s what created the opportunity to build completely new business models such as Amazon, Google, and Facebook . It was the businesses created on top of the infrastructure, rather than the infrastructure itself, that truly changed the world.
Blockchain today is probably in a stage similar to that of the “walled gardens” of the Internet. The types of networks that IBM has set up tend to focus on a single function, such as transferring money, validating identity, or streamlining supply chains. That’s useful, of course, but far greater value can be unleashed when we are able to combine those communities into a single marketplace.
“I think much like the Internet was able to organize separate databases into an interlocking, networked marketplace, we see the potential to link separate blockchains together into a greater ecosystem that will lead to new business models,” Marie Wieck, General Manager of Blockchain at IBM, told me. “It will allow people that aren’t currently able to collaborate to effectively partner and create new value through communities of innovation.”
That’s the future that is taking shape today. It is those “communities of innovation,” that will give rise to the new business models out of which the next Amazon, Google, or Facebook can emerge.
When Bitcoin first emerged many assumed that it would evolve into a new layer to the financial system. What’s taking shape now is far more important profound—a new layer to the Internet, which will be far more secure and far more flexible than what we have today. Much like the first Internet, it will evolve into a platform that will support new business models—and possibly entirely new industries—for decades to come.