Building blockchain into digital foundationsAsk Paul Brody how blockchain — the hottest technology sweeping banking — will disrupt the industry and he sees a far broader impact.
“I had this ‘ah-ha’ moment when I was working on the blockchain at IBM,” Mr Brody, Ernst & Young’s technology strategy leader for the Americas, told The Australian from his base in the US.
“I realised bitcoin is just a specific use case of blockchain and banking is just one (industry for it).
“This (blockchain) is transaction processing (and) I can write applications for this and I can use this as the foundation for online marketplaces.
“And ... it will use the resources that are already out there so the cost to me to run applications in the cloud will be zero because it will run everywhere on assets and technology and infrastructure that is idle and already exists.”
As swarms of global experts on blockchain gather in Sydney this week for a conference co-hosted by the Commonwealth Bank, Mr Brody’s comments help explain the hype around the digital ledger technology that has become the next big thing for big corporations and policymakers.
Westpac this week will host a blockchain design challenge at financial technology hub Stone & Chalk.
But for many in the public, blockchain remains a confusing mystery, if they have even heard of it at all.
Michael Eidel, CBA’s executive general manager of cashflow and transaction services, conceded it could take time for the complex technology, which was developed to record transactions for digital currency bitcoin, to become mainstream while companies explore opportunities and get regulatory approvals.
But he said CBA was already working with other banks and trialling blockchain at its Sydney headquarters.
Blockchain-powered systems and environments can be closed and require permission, or open to all. Mr Eidel said banks would initially focus on the former to understand the technology and help educate regulators.
“I think in the long run the value of blockchain comes with critical mass and open accessibility for everyone around the globe, like the internet,” he said. “But on the way there … to learn how it works and experiment, you would start small.
“We have started some experiments with other banks to see how this works, but also within CBA, for instance, on an in-house closed loop blockchain-based currency for our internal cafe, to see how this works between a cloud-based blockchain, a merchant and our employees as customers.”
Mr Brody, a former leader of IBM’s mobile and “internet of things” practice, said blockchain was “actually quite ordinary”, and described it as an improved way to process transactions of assets with far greater speed without the need of a central bank or exchange for settlement.
But “what’s extraordinary” about blockchain was the security, he said, adding that law enforcement agencies in the US were warming to the technology because it was easy to piece together information.
Referring to the “disruptive innovation” term coined by professor and author Clayton Christensen, Mr Brody said blockchain would disrupt “a lot” of industries focused on connecting people and assets. But he said banks would use it more for “sustaining innovation”.
For instance, he said, blockchain and the greater automation of machines online would reduce costs for banks, create greater volumes of transactions and ultimately increase demand for credit.
“The world is sitting on mountains and mountains of assets and the truth is we are terrible at using them,” Mr Brody said.
“For example, the average car is actually in use only 4 per cent of the day.
“So if you take assets and put them into digital marketplaces, their utilisation goes up and the cost goes down. So what you see with Uber, it’s really an asset marketplace for cars and drivers.”
Mr Brody said the so-called internet of things, goods connected online, would see all assets, from offices to cars and parking spots, being connected online.
“People are going to start wanting to make better use of those assets. They’re going to put them in marketplaces,” he said.
“I can only think of one technology that I would trust to build a massive global marketplace for assets and people and that is this technology (blockchain) because of its trustworthiness.”
CBA is co-hosting “blockchain workshops” today and tomorrow with COALA, a group of academics, lawyers, technologists and entrepreneurs promoting blockchain.
Like its peers, CBA is dipping its toe in the space as part of a consortium of 30 banks led by blockchain company R3 to further its development in the finance sector.
Mr Eidel labelled blockchain “very promising”, particularly because of its security that promoted trust between multiple parties.
For example, in trade finance deals for business customers where there were several transactions and lots of paperwork, using blockchain could remove the need for physical contracts and make the process more efficient.
“This is an active experiment we are working on with another like-minded bank to see how this works and it’s very exciting and promising,” he said.
However, Mr Eidel conceded that banks would have to keep an eye on blockchain and greater connectivity between machines online, as it could ultimately enable large companies with lots of cash, such as Apple, to on-lend to companies.
http://www.theaustralian.com.au/business/financial-services/building-blockchain-into-digital-foundations/story-fn91wd6x-1227635781554
