Bitcoin and other cryptocurrencies are already starting to shake up the financial services industry. They have also got entrepreneurs thinking about other applications for the blockchain technology that underlies them, including ones that address various processes inside non-financial companies such as contracts, audits and shipping. The digital signatures that certify each transaction and the distributed, write-only online ledger that constitute the core of the blockchain tech have the potential to offer even more security in these and other areas than more traditional approaches used by businesses.
Blockchain isn’t the only game in town either. The Linux Foundation recently revealed that it is leading an open source effort to develop an alternative to bitcoin’s underlying tech. The initiative, which has been dubbed the Open Ledger Project, is being supported by a coalition of leading financial services and tech companies, including Wells Fargo, State Street, the London Stock Exchange Group, Cisco, Intel, VMware and IBM. IBM, which has been a driving force behind the project, is reportedly contributing many thousands of lines of code to it as well as considerable developer resources.
The new kid on the block will have some catching up to do with blockchain, which is already being employed in some innovative ways. Nasdaq OMX, the parent company of the NASDAQ stock exchange, wants to use the tech to oversee trades in the stock of private firms and the Securities and Exchange Commission recently approved a plan by Overstock.com that involves the online retailer issuing stock using blockchain technology. Startups such as Digital Asset Holdings and Coinbase are also looking to profit from growing interest in digital tracking and trading using the new approach.
The firms that gain traction here will get plenty of attention. Investment banking firm Magister Advisors thinks that financial institutions will be spending a total of over $1 billion on blockchain-related projects in 2017. And finance is just one industry where the new technology could drive significant change. In the music world, startups such as PeerTracks and Bittunes are aiming to use it to revolutionize the way music is bought and shared. And in the art world, Verisart is harnessing the blockchain to improve the way art is secured and verified.
Looking at enterprise markets, there is a huge opportunity to apply blockchain technology or other variants in any place that involves swaps, trades or exchanges. One of the most obvious applications is in contractual situations where there is a need for proof that various parties are committed to a transaction. Companies such as Block Notary and Bitproof are developing ways to bind digital signatures into the blockchain and some firms are also experimenting with the technology to create escrow contracts that hold money on account until mutual agreement is recorded.
Another area where I expect to see more activity using blockchain technology is in auditing. Deloitte is one of a number of professional services firms that is experimenting with distributed digital ledgers. Here, transactions can be posted into a blockchain, which would apply a timestamp and act as a repository. Typically, auditors only choose a sample from a set of transactions to check; but using the new approach, it may well be possible to verify a much broader range of transactions securely and cost-effectively. There are a lot of regulatory issues still to be ironed out, but the opportunity to provide certainty with significantly less friction is a compelling one.
There is also a big opportunity to use the technology to improve shipping and supply chain management. An example of a startup here is Thingchain, which is applying a bitcoin-inspired cryptosystem to multiple use cases, including proving the provenance of goods and who owns them.
Many companies are still learning about the potential of blockchain technologies, so it may be some time before we see broad adoption beyond finance. But the potential is significant—and not only in the areas that I’ve outlined above. Entrepreneurs are already exploring enterprise applications that cover everything from patent registration to recording the results of boardroom votes. Expect to see more and more businesses joining the blockchain gang in 2016 and beyond.
Martin Giles is a partner at Wing Venture Capital (@Wing_VC). He was previously a journalist with The Economist.