Just a few years ago, blockchain – also called digital ledger technology (DLT) – was the next big thing. It was going to transform every facet of our lives, including the entire global payment system; back-end office systems; and supply chains from beginning to end. The hype was immense. Every spivvy entrepreneur and their dog set up a company that somehow had its value inflated by some version or other of blockchain. Some didn't even bother coming up with a blockchain business, they just slotted "blockchain" into their name and watched the share price shoot up. The Long Island Iced Tea Corp., which notoriously became the Long Blockchain Corp., immediately enjoyed a share price surge of 458%.
What exactly is this technology?
At its simplest, blockchain is a ledger: a way of storing and manipulating information, like a spreadsheet or database. Crucially, though, where a normal database is a single, centrally controlled entity, a blockchain is a public "distributed ledger". Each computer that has access to the chain has its own copy. It is literally a chain of blocks of information. As a new piece of information is added to the ledger, it creates a new block in the chain.
The block stores the information, but also who added the information and who has access to it. Once a block has been added and verified, it is given a "hash" – a unique, immutable code that identifies that transaction. You cannot go back and change any of the information stored; any changes are recorded as new blocks in the chain with a record of who has done what.
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Another unique feature of blockchain is its ability to use "smart contracts". A smart contract is computer code stored on the chain that can execute transactions between parties once certain conditions have been met: for example, to automatically transfer the ownership of property once funds have cleared; to release funds to a supplier once goods are confirmed as having arrived; or to impose financial penalties if certain conditions are not met. All of this is "permissionless" – it can be done with no need for someone to provide access. It is all coded into the blockchain when the agreement is initially drawn up. And it is this security, and the fact that all parties have access to the information so that there is no need for a middleman, that makes blockchains so useful.
In situations where multiple parties need to access and update data in the knowledge that it is secure and cannot be tampered with, and where intermediaries can be eliminated, a blockchain system is an ideal solution, according to IBM, which employs more than 1,000 people on blockchain products. It is making its blockchain platform available to other organisations that want to create their own versions.
The blockchain hype of recent years went hand in hand with the meteoric rise of bitcoin, whose price peaked at almost $20,000 this time two years ago only to come crashing down in the subsequent months. Blockchain was, after all, created to track ownership and transactions of the digital currency.
Now, however, it all seems to have gone quiet. Many of the promised fabulous enhancements to our lives have yet to happen. Other digital currencies launched to cash in on blockchain have withered away. People are now asking whether blockchain was all just a load of hype. Is that true?
Slowly but surely gaining ground
Blockchain is still here and is slowly but surely gaining ground rather than disrupting everything in one fell swoop. Big business is quietly adopting this technology to do the things it's good at: settling transactions, recording ownership and verifying identities, for example. It may not be a purist's idea of what blockchain should be – a public, permissionless ledger open to all – instead, what we are seeing are private, permissioned blockchains. That means that, unlike public blockchains such as bitcoin, only certain users with the appropriate privileges can add blocks to the chain.
The technology is following the classic example of "hype cycle" first observed by research firm Gartner. It consists of five key phases. A new technology is developed and enters the "trigger" phase; publicity explodes and everyone wants a piece of the action; the cycle enters the "peak of inflated expectations" (that was the bitcoin peak that prompted chancers to launch new cryptocurrencies); then, when the technology doesn't seem to change everyone's lives as promised by the early adopters, we enter the "trough of disillusionment": investors lose interest. But then, after a while, people find uses for the new technology and we begin to climb the "slope of enlightenment". Then comes the "plateau of productivity". With blockchain we're just past the "trough of disillusionment", having risen over the peak of inflated expectations and we're now in the foothills of the slope of enlightenment.
Big business is adapting to blockchain
There have been flops. Insurance giant Axa trialled a blockchain-based flight insurance product called Fizzy. It used smart contracts to pay out automatically if your flight was delayed. But just the other week it decided to shelve it. And some projects have had a rather longer gestation than was originally envisaged. The Australian Securities Exchange ASX has been planning to replace its clearing system with a blockchain-based system. It has been in development since 2015; the latest estimate for its deployment is spring 2021. Australia is not the only exchange looking at using DLT. Shanghai, Hong Kong and New York are interested too. As Joshua Oliver noted in the Financial Times a year ago: "Worldwide, three quarters of the financial market infrastructure operators surveyed by Nasdaq and Celent are working on DLT pilots or already using DLT".
"Enterprise" blockchain is now most definitely a thing, having moved from proof of concept to real-world applications. And big business has bought in: along with IBM's platform, other big enthusiasts include Amazon and Oracle. Amazon's clients include management consultants Accenture, AT&T and Guardian Life Insurance; Oracle's clients include a Jordanian investment bank using blockchain to facilitate cross-border payments; a healthcare technology company providing a network for healthcare organisations to share data and processes securely; and a brewer tracking its supply chain.
Much of the activity is in financial services. One high-profile trading platform is we.trade, set up by a consortium of big banks including HSBC, Societe Generale and UBS. It allows small and medium-sized businesses to guarantee and process transactions digitally, cutting down on paperwork and speeding up trades.
Another area where DLT is useful is in identity verification. In Canada, Verified.Me is a system that has been developed between government agencies and private companies. Customers of five banks including Royal Bank of Canada and Scotiabank can now verify their identities using blockchain technology.
But it is in supply-chain management that it is really proving itself. Last year, IBM launched its Food Trust platform, a blockchain-based system for tracking the supply chain of food. It was originally trialled by Walmart, but is now being used commercially by, among others, Nestl, Carrefour, and Unilever, says Forbes. Walmart Canada has now developed its own system with DLT Labs, a Canadian blockchain developer, for tracking deliveries, verifying transactions and automating payments among suppliers to its 400 retail stores. Shipping giant Maersk developed the TradeLens supply chain platform with IBM, to track cargo around the world. Maersk now wants to monetise the platform and it has recently been joined by Hapag-Lloyd and Ocean Network Express of Singapore.
What is China planning?
But perhaps the most fervent adopter of blockchain technology recently is China. President Xi Jinping recently praised blockchain as a "core technology" and called for more support and investment. China's tech-focused shares surged. Over 500 new projects have been registered with the Cyberspace Administration of China. China's big tech companies are involved, says Jane Cai in the South China Morning Post, and there are "dozens of government-led initiatives and schemes, in areas ranging from communications to land development".
It is somewhat ironic given the technology's libertarian origins. "China is now pushing toward global blockchain dominance," says Kevin Werbach in Wired. That's something that should get the rest of the world and especially the US worried, says Biser Dimitrov on Forbes.com. "Having a superior blockchain technology will give China an enormous trading opportunity with the emerging technology markets." And then there's the spectre of a digital renminbi. A digital currency controlled by the People's Bank of China has the potential to usurp the dollar as a global currency.
While blockchain in the West is mainly business-driven, China is adopting it to strengthen its grip on its population. Mu Rongping, director of the innovation and development research centre at the Chinese Academy of Sciences, told Cai that "The potential is huge for the use of new technologies, such as in areas of public security, public transport, crime investigation and anti-corruption campaigns... Blockchain could open a new chapter on the integration of governance and technology". Rather than fulfilling its original imperative of shifting power away from centralised authority, it could actually help China's government cement it.
Still, what is clear is that, for good or ill, blockchain is no longer the brash shouty new kid on the block; it's maturing. Slowly but surely distributed ledger technology is integrating itself with public and private systems. It's here to stay.
Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.
Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin. As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.
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