Crypto Means Business

Three Burning Blockchain Questions

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Blockchain is everywhere these days. From CryptoKitties to the company formerly known as Long Island Iced Tea, blockchain has become one of the most talked-about technologies since the advent of the internet.

Ultimately, it will move beyond talk and become a core functional technology powering everything from payments to voter identification. But given that we’re still in the early stages, we often have to help sort through the hype to better understand the reality of blockchain today and tomorrow.

Generally, we hear three basic questions as part of those conversations. We thought it might be helpful to share and address those here.

What is blockchain?

The core concept is a simple breakdown of the name: blockchain is a chain of data blocks. Because it is spread out over a network of computers, no single company owns all the data. This means there are no discrepancies between company ledgers since there is only one record of the data owned across this network.

The goal of blockchain is to deliver an agnostic, digital ledger that can be universally trusted. Its potential applications are legion: identity, voting, finance, property ownership, global payments and many more. And its impact could be enormous. Gartner predicts that blockchain will deliver $176 billion in value to businesses by 2025, and an incredible $3.1 trillion just five short years later.

Why does blockchain matter? 

The ultimate role for blockchain will be more substance than sizzle.

To understand the many different areas where blockchain holds value, think of interactions that require trust. Personal identity is an obvious one. On the Internet, the famous New Yorker cartoon explains that no one knows you’re a dog. This could be trouble for cats – especially if canines manage the accepted system of identity. By placing trust for identity in a secure, distributed network that is visible to everyone, blockchain can help resolve issues of identity verification for travel, transactions and more.

Supply chain is another example. Rather than use proprietary software systems that must communicate with one another, hospitals and suppliers can use blockchain as a trusted, independent network to track inventory levels, monitor costs, and close transactions faster and more efficiently.

Removing friction from global payments is the focal point for Ripple. Ripple’s primary customers are financial institutions conducting transactions across borders. Historically, this has been a complex process fraught with delays, fees and risks. But blockchain is changing the game.

Even as global commerce has expanded and effectively flattened the world, these borders still stand tall – essentially bringing a transaction to a stop every time it meets one. In order to complete international payments, providers have to accept 3-5 day settlement times, fund pools of liquidity in local currencies on each side of a transaction (nostro accounts), and wait out a blackout period while funds were in transaction and unable to be tracked by either the sender or the recipient.

This opacity and confusion surrounding international transactions was laid bare in the years-long $1.8 billion Punjab National Bank fraud that was just recently uncovered. The perpetrators of this fraud uncovered a vulnerability —  the messaging system was not linked to the centralized system of record and, therefore, fraudulent transactions went under the radar and left PNB officials in the dark for years. With Ripple, it’s impossible to separate the messaging system (xCurrent Messenger) from the system of record (xCurrent Ledger) – so chances are that this type of fraud would have been detected immediately.

Moreover, by removing the friction that exists when moving money across borders, financial institutions can fund international transactions in real time, affordably and with complete transparency. And for those that leverage XRP as a digital asset custom built for institutional use in these transactions, they can eliminate the need to create nostro accounts on each side of a transaction. The end result is more customers, new markets, and healthier bottom lines.

Which blockchain will win? 

While the chatter around digital assets and blockchain can sometimes sound like an episode of Game of Thrones, the truth is that the sheer number of applications means there will be multiple forms of blockchain with utility. Projects custom designed for real estate ownership, supply chain management, and international payments all have unique technology and features that can allow them to succeed.

The key to making them thrive is their ability to interact and interoperate. Just as the Internet evolved from distinct proprietary networks into the worldwide web using a core communication protocol, so will disparate blockchain technologies mature into an interoperable system of decentralized distributed ledgers.

This will require a common language like the Interledger Protocol (ILP). This system of sharing information or data packets across ledgers will power the Internet of Value, the financial equivalent of the Internet of Information.

The promise of ILP and the Internet of Value means that as an organization, you should not wait for a future that will never arrive. Instead, identify the solution best matched to your needs to be ready to fully realize the promise of the Internet of Value.

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