Ken Lo, CEO, ANX International, gives an introduction to blockchain technology, its implications for the business environment and how organisations can harness its advantages.
Financial technology (FinTech), which emerged in the mid-2000s, is the industry that merges financial services with technology to make those services more efficient. Finance is seen as one of the industries that is most susceptible to disruption by technology, in particular blockchain, because privacy, timing and accuracy are very important in financial services.
Blockchain is a relatively new technology that in simple terms is a secure and distributed ledger – a digital database which can be accessed by a distributed network of individuals. According to the PricewaterhouseCoopers (PwC) Global FinTech Report, published in March 2016, while FinTech disrupts banks, blockchain disrupts FinTech. ‘Blockchain represents the next evolutionary jump in business process optimisation technology,’ the report states.
As a key trend in the FinTech scene, blockchain technology and the disruption it is causing have been getting a lot of attention from businesses, governments, major institutions, investors, media and academia. Recognising its importance, the Financial Secretary of Hong Kong, John Tsang, made the need to develop blockchain one of the themes in his 2016-2017 budget speech.
According to Coindesk, as of Q1 2016, total venture capital investment in bitcoin and blockchain startups now exceeds US$1.1 billion. Global institutions and politicians have also started to explore the potential of blockchain technology. Visa Europe is working to leverage bitcoin blockchain for its remittance services. MasterCard and American Express have invested in Digital Currency Group (DCG) and Abra, a cash money transfer app. PayPal also added the CEO of Xapo, a Switzerland-based FinTech company that provides a bitcoin wallet, to its board of directors. The US Presidential candidate, Hillary Clinton, has included blockchain development in her campaign agenda to position American innovators to lead the world in the next stage of the technology revolution.
Blockchain and bitcoin
Blockchain is a secure, permissionless distributed ledger database for transactions which is shared by all parties in a distributed network; it does not rely on a central authority for verification and validation. The technology provides an indisputable, verifiable, transparent and ineradicable transaction-based solution. It records and stores every transaction that occurs in the network, creating an irrevocable and auditable transaction history.
The best known adoption of blockchain technology is bitcoin, which was introduced in October 2008. Bitcoin is a type of encrypted digital asset that is transferable electronically without requiring any central party, such as a bank, to validate transactions. Blockchain applications are wide ranging, however, and are no longer limited to bitcoin; this technology is transforming the way data is handled and stored. Blockchain can be used to record the transfer of any digital assets, ownership of physical and intellectual property, and establish rights through smart contracts, among a wide range of other possible applications.
Who is adopting blockchain?
A blockchain-based solution can bring security, integrity, stability, and distributed-consensus to financial markets. It enables real-time settlement which can simplify middle and back-office processes, and can minimise the possibility of fraud. Some early adopters in the financial services industry are listed below.
Bank of Canada – has announced it will be using blockchain to test interbank payments. It will be using technology being developed by R3, a blockchain technology company that leads a consortium of over 50 financial companies in research and development of blockchain usage in the financial system.
Bank of Tokyo-Mitsubishi – has announced it is experimenting with a digital currency that will be underpinned by blockchain.
Nasdaq – in December 2015, Nasdaq used its Nasdaq Linq blockchain ledger technology to successfully complete and record a private securities transaction between Chain.com and an unnamed investor, removing the need for a middleman such as a clearing house. This disintermediation is thought to have the potential to shorten the process and reduce settlement risk by over 99%.
The Bank of England – has announced a plan to launch its own digital asset called RSCoin which will function on blockchain technology.
People’s Bank of China – has stated its intention to launch its own digital currency in January 2016, hoping to give greater control to the bank over the circulation of money and improve the efficiency of its payment system.
AXA – launched a laboratory of innovation on blockchain technology with 11 European partners for an initial period of six months in 2016.
Consumer and industrial products
Blockchain simplifies settlement processes and allows micropayment settlement without the need for verification by third parties. It can also support loyalty points programmes and transaction records for organisations. Some early adopters in the consumer and industrial products industries are listed below.
Expedia – will accept bitcoin for hotel booking alongside traditional payment methods such as credit cards or PayPal.
ANX International – recently launched ANX Blockchain Services (ABS) which allows companies to create customised digital assets that can be used to represent loyalty points which are recorded in real-time.
Technology and telecommunications
Blockchain supports the ‘internet of things’ (IoT) – consumer products embedded with network connectivity that enables them to collect and exchange data online. Some early adopters in the technology and telecommunications industries are listed below.
Telstra – The Australian telecommunications giant is doing its research on blockchain, trying to find potential future partners to develop a blockchain solution.
IBM – has unveiled its proof of concept for Autonomous Decentralised Peer to Peer Telemetry (ADEPT), a system developed in partnership with Samsung using blockchain to build a distributed network of devices in January 2015.
21 Inc – launched Ping21, which uses blockchain to track websites globally in March 2016.
Factom – in June 2016 Factom signed a US$199,000 deal with the US Department of Homeland Security to carry out a project named ‘Blockchain Software to Prove Integrity of Captured Data from Border Devices’, relating to verifying the identity of IoT devices.
Blockchain enhances the security of confidential medical records and the irrevocable and immutable nature of transactions makes claims processing more efficient. Some early adopters in the healthcare industry are listed below.
Philips – is going to join Gem Health, a network for developing applications and shared infrastructure for healthcare, as the first major healthcare operator to use blockchain technology.
The US Department of Health and Human Services (HHS) – together with the Office of the National Coordinator of Health IT, the HHS announced a contest to explore how blockchain technology can enhance the healthcare system with effective solutions.
Republic of Estonia – the Estonian eHealth Foundation has announced a partnership with Guardtime to deploy a system to store patient records using blockchain technology, thus providing real-time visibility and authenticity.
Blockchain can improve the efficiency and accuracy of record-keeping in the public sector (for example in land registry). It could also help to prove a piece of work’s provenance and attribution, as well as securing intellectual property in creative digital products like music and images. In addition, with blockchain, the voting mechanism for elections can be more secure and efficient.
Swedish Land Registry – became the first country to have a blockchain-based land registry using digital contracts, minimising the risk of disputes over land ownership.
The US Postal Service – has released a report to show its interest in using blockchain for its financial services, logistics and keeping track of mail.
Flux – this Australian political party is planning to use a mobile app that allows registered voters to tell elected proxy senators how to vote in parliament.
The Government Office for Science in the UK – has highlighted the potential for assuring ownership and protect intellectual property by using blockchain.
As the CEO of a FinTech company specialising in blockchain solutions, I often meet decision-makers who recognise the potential of blockchain and the tremendous benefits of blockchain for their business. ‘Digital-first’ is the strategy we recommend – everything we do nowadays is digital and hence business strategies should have that as their first priority.
Blockchain has become a hot topic in corporate strategy meetings. First, companies should assess the benefits of blockchain. Second, they need to understand the developments of blockchain and its capabilities. Third, they need to ensure the technology is well-integrated into business operations.
Just as the internet revolutionised the sharing of information, blockchain will revolutionise the way we share and store value. Investors, global institutions, governments, media and industry leaders have shown huge interest in exploring how companies can make use of blockchain technology. Blockchain can transform a wide range of industries by increasing transparency, cybersecurity and efficiency while reducing costs and overheads. Companies across different industries have been proactively adopting or initiating blockchain applications. Governments around the globe also encourage blockchain developments and innovations. Now is the right time to take a look at what blockchain can do for you.
CEO, ANX International (ANX)
Ken Lo co-founded ANX – a FinTech startup based in Hong Kong that specialises in blockchain solutions – with Dave Chapman and Hugh Madden in 2013.