Barry Collins reports on how major corporations are embracing blockchain technology, including Google, Facebook and IBM…
by Barry Collins
There’s a huge misconception about cryptocurrencies – and the blockchain technology that lies behind them. They’re often portrayed as the shady plaything of greedy speculators and criminals; respectable organisations would have nothing to do with them.
In fact, that could not be further from the truth. Every major tech company you can think of is busy developing blockchain projects. From tracking medical records, to managing supply chains and monitoring the flow of gas and electricity around the globe, some of the world’s biggest blockchain projects are being run by Microsoft, IBM, Google and other household names.
Neither are they ignoring the growing demand for cryptocurrencies. Facebook CEO Mark Zuckerberg even declared cryptocurrencies as one of the two major technologies he plans to study and bring to his business in 2018.
Cryptocurrency is big business – and big businesses are well and truly on board.
The Facebook currency?
Every January, Facebook CEO Mark Zuckerberg starts the year with a post on his social networking site, setting himself a personal challenge for the year ahead. In previous years he’s taught himself Mandarin, visited every US state or run a mile every day. This year, he’s diving into cryptocurrencies.
Addressing the fear that technology merely centralises power, Zuckerberg wrote that “there are important counter-trends to this – like encryption and cryptocurrency – that take power from centralised systems and put it back into people’s hands.”
“I’m interested to go deeper and study the positive and negative aspects of these technologies,” he continued, “and how best to use them in our services”.
The immediate, frenzied speculation about Facebook launching its own currency was both predictable and overhyped – he announced no such thing. But Zuckerberg’s company has already taken tentative steps into this area. Facebook Messenger lets you send payments to contacts using a regular bank debit card, and Facebook-owned WhatsApp is introducing a similar feature. It’s certainly not beyond the bounds of possibility that Zuckerberg’s studies will lead him to conclude that Facebook “could take power from the centralised systems” of the banks by running its own cryptocurrency.
Banking for the poor
Other tech giants are already heavily invested in the cryptocurrency business. Alphabet – the parent company of search giant Google – was recently identified as the single biggest investor in blockchain technology, with no fewer than six different investments through its Google Ventures arm.
One of those is the cryptocurrency trading platform, LedgerX, which has recently established a clearing house for derivatives contracts settled in digital currencies. That’s seen as a massive step towards legitimising cryptocurrencies, potentially providing the stability that cryptocurrencies such as Bitcoin infamously lack.
However, LedgerX’s husband-and-wife co-founders are thinking beyond cryptocurrencies for big corporations – they also believe the technology could be used to bring banking services to those who are traditionally turned away by the banks. “LedgerX has been working the last two years on what we think is a fundamentally new use case,” wrote Paul Chou, the company’s CEO and co-founder in a recent blog post. “There is a reason my wife and I spent so much time thinking about microfinance in college — how do we give access to financial services to the poor? Bitcoin offers that promise.”
Chou says the company will soon release a white paper revealing how it plans to use cryptocurrencies to offer financial services to the billions of people shunned by the banks. “It’s ambitious,” he wrote, “but we will get it right.”
Ripping up centuries-old systems
While Chou works on bringing cryptocurrencies to the world’s poorest, IBM is pressing ahead with a project that it hopes will create a new global system for trade finance – all built on blockchain.
IBM has teamed up with five of the world’s leading banks to transform a trade finance system that can trace its roots back to the 16th century. It hopes to replace an outdated, paper-based system with a blockchain-based ledger that it says will cut the amount of time it takes to settle payment for goods from weeks down to less than four hours.
The system will use smart contracts to reduce the time and cost of providing finance for transactions between companies in different countries. Instead of waiting for payments to be signed off through a series of different international banks and clearing houses, the money will be automatically transferred as the goods make their way around the world.
The Batavia system will allow all the parties in a transaction to track the progress of a shipment as it leaves the warehouse and is loaded onto a truck, plane or boat. As the goods complete each leg of their journey, payments are automatically released, meaning that suppliers don’t have to wait for goods to reach their end destination before the bill is settled. “The creation of large, global, multi-modal networks that bring transparency and trust to each step of the trade process is what makes Batavia a platform with so much potential to transform the way companies around the world do business with one another,” said Fabio Keller, who is leading the project at IBM.
Keeping government secrets
One of the most appealing traits of blockchain technology is trust. Every transaction is recorded in a ledger that it’s almost impossible to pervert. It’s potential to eliminate fraud and waste are enormous.
Few sectors are as prone to waste as government. Take international aid, for example. It’s a common complaint in many Western nations that money allocated to international aid doesn’t reach those in need, either being syphoned off by intermediaries or not spent on the projects it was originally intended for.
Blockchain has the potential to prevent money from being diverted, with smart contracts used to record every transaction on the way from government departments to the targeted aid project. “When [the US] Congress approves a large package for disaster relief, which is obviously top of mind for a lot of people these days, there’s a lot of organisations that are processing funds, purchasing relief goods and transporting them,” Microsoft’s chief technical officer, Mark Russinovich, said in an interview with coindesk. “And there’s potential for fraud and waste there that blockchain’s transparency and reconciliation process will eliminate.”
Late last year, Microsoft paved the way for the US government to start testing blockchain technology. It launched the magnificently named Azure Government Secret, a special protected wing of its Azure cloud computing service, which has been allowing private firms to experiment with blockchain since 2015. Six of Microsoft’s data centres have now been fully isolated for government use, with the facilities staffed solely by US citizens with special clearance, as specified by the US government.
Microsoft says the government will be able to experiment with using blockchains to solve a wide variety of problems, including “distribution of funds after natural disasters, registration of property ownership, and other issues involving tracking ownership of funds or assets through multiple transactions”.
The US isn’t the only government that’s taken a shine to blockchain, either. The British Home Office has already committed £10 million to investigate the usage of blockchains in Whitehall. “The fact that data held in the blockchain comes with its own history, and that history is a fundamental part of proving its integrity, this fact is enormously powerful,” said the then Home Office Minister Matt Hancock.