Sunday, October 15, 2017

What's missing from this Top 5 uses of Blockchain list?

TechRepublic's Tom Merritt  walks us through the "Top 5" uses of blockchain in the following video. The accompanying post lists the following 5 use cases:
  • Stocks
  • Shipping
  • Diamonds 
  • Livestock 
  • Law

What's missing? 

Stocks use case is actually limited to Initial Coin Offerings (ICOs). For more on an overview of ICOs, check this article. However, the post excluded Linq's blockchain that allows for the settlement of private securities.

But on a broader note, the post excluded the financial industry altogether in terms of being a forerunner for the use of blockchain. Following the hype-cycle, one of the early areas of interest for the use of the permissioned blockchain were financial institutions. It seemed like every week that a company joining the R3 Consortium.


However, since that initial fervor, a number of players, such as Goldman Sachs, Santander, Morgan Stanley and the National Australian Bank, have left the consortium.

Why?

The problem lies in understanding the actual business case for the permissioned blockchain (for the differences between public and private/permissioned, see this post). The permissioned blockchain helps parties to have a common view of transactions that they have transacted with each other via a shared ledger database. With the use of digital signatures, it incorporates authorization into this as well, so in addition to sharing information, it also enables the ability to "sign-off" on that information.

The banks could decide that they would use such a framework to make it easier to settle payments, however, how do they keep things private such as pricing and other data? This is something that needs to be sorted out but points to a bigger question as to what is the strategic advantage of blockchain for FIs. That is, this exponential technology doesn't lead to cost savings like robotic process automation or strategic insights like big data analysis.

And that's why I think something like shipping or supply chain more broadly is a much better beachhead for blockchain. With multiple partners involved in supply chain, have a shared database enables the partners to see where things are at between the wholesaler, shipper, and retailer, enabling each partner to get better insights into movement of goods and other business information. Such a system would allow for creative ways to settle payments or even enhance the ability of retailers to design consignment contracts with wholesalers. For example, BestBuy is marketplace (e.g. Brainydeal is one such retailer) within its retail front requiring such coordination. The one caveat, however, is to ensure that (cheaper) existing technology doesn't actually do this already. After all, shared databases are not a novel concept.

I would contend that legal would be a great place for the blockchain to expedite paperwork - more so than supply chain. However, such technology would be fought tooth and nail by lawyers. And they have unlimited resources to fight such technology in the courts. Also, politicians have little incentive to look into such advances as most of them are lawyers, depend on lawyers or have friends who are.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the way we do financial audits. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir, Deloitte's or anyone else.

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