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March 16, 2017

Blockchain: A Quiet Revolution? A Disruptor? Both?

Think about many of the technologies we now take for granted, like the smartphone. Think about how significantly the smartphone has changed the way we live and work. Think about how your business life was a mere 10-12 years ago. When you were out of your office, you were gone, because a telephone was tied to a place and not to a person. Contrast that to today, where we have global nomads building new businesses directly from their smartphones. Was the smartphone a quiet revolution? Indeed it was. Was the smartphone a disruptor of the status quo? You bet it was. Are there any quiet revolutions taking place today that will disrupt our world in a manner similar to the smartphone? Yep…….welcome to Blockchain. When one considers the fact that the country of Dubai has a strategy to issue all government documents on Blockchain by 2020….that’s right……2020…..the fact that many people have not even heard the term “Blockchain” is clear evidence that it is indeed both a quiet revolution and a disruptor.

Blockchain owes its genesis to the cryptocurrency Bitcoin. Blockchain, a peer-to-peer network that sits on top of the Internet, was introduced in October 2008 as part of a proposal for Bitcoin, a virtual currency system that eschewed a central authority (Federal Reserve, etc.) for issuing currency, transferring ownership, and confirming transactions. Although Blockchain technology was developed to implement Bitcoin, it’s entirely separable from Bitcoin. The realization that the underlying technology that operated Bitcoin could be separated from the currency and used for all kinds of interorganizational cooperation was an innovation in its own right. Almost every financial institution around the globe is doing Blockchain research at the moment, and 15% of banks are expected to be using Blockchain in 2017. As a result, Blockchain has the potential to dramatically shift the way we define, track, share, own and manage transactions because Blockchain is a distributed ledger.

Here’s an example of how Blockchain may disrupt the current business structure: the introduction of the shared ledger. If you run a business, you understand the concept of managing private ledgers in the financial side of your business. Your company has ledgers (usually software such as Quickbooks for example), that records your company’s many transactions, leading to a balance sheet and income statement for your business. Your private ledger is accessed and managed only by authorized employees or agents. At the end of the year, the auditors come out to conduct an audit of your company’s financial statements. Let’s say as part of that examination, the auditors confirm a $500,000 account receivable from Alpha Company by examining the invoice and by sending a formal confirmation. This receivable is only valid if Alpha Company’s private ledgers show that they owe your company $500,000. As it stands today, it takes significant time and cost to verify this transaction and others like it in a financial statement audit. Blockchain eliminates that because it is a distributed ledger.

By contrast to the private ledger concept, Blockchain comprises both the transaction itself and a shared (distributed) ledger for that transaction. Using Blockchain in the example above, your company and Alpha Company share the same data. There is one ledger for this transaction that is shared between the two companies. Therefore, confirmation is no longer necessary as one can conclusively say that Alpha Company owes your company $500,000 because both companies are looking at exactly the same ledger, the same data. Disruption? A resounding yes, as moving from a private ledger to a shared ledger is currently difficult for us to grasp. Predicting what direction Blockchain will take going forward is difficult at best. For example, did anyone see social media coming? The sense of scale by informed minds inside the Blockchain industry are that the changes coming will be “as large as the original invention of the Internet”. Perhaps disruption is in essence, the consequence of a quiet revolution.

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