Barclays | Blockchain

Understanding the Potential | Simon Taylor

Blockchain: understanding the potential

Blockchain: understanding the potential Bitcoin, heralded by many as the single biggest breathrough since the arrival of the internet, has proved to be something of a moving target since its launch in Š‹‹Œ­ Žowever, it continues to be the focus of significant investment and innovation with the industry predicting that more than $1 billion in venture capital funding will ’ have been invested in bitcoin and its future by the end of Š‹1‘ Recent developments include BitPesa, a Nairobi- clichés and misconceptions have grown up around „his may prove to be the case – but rather than based start-up focusing on bitcoin remittances, the digital currency and its underlying technology­ simply leaving it there, bans and companies could which raised over $1 million earlier this year and „hese misconceptions can hinder discussions about be delving into this topic to understand what maes Earthport which agreed a partnership with Ripple the future direction of development and the way in this technology so attractive and what types of abs allowing real-time cross-border ban payments which initiatives are presented in the media­ application could be created­ ˆt is only when the But, it is becoming increasingly clear that bitcoin is …or one thing, its associations with †il Road, the possibilities are e‰plored in more detail that the true part of an even bigger story financial institutions, digital blac maret, have left some people with scale of possible change can be appreciated­ including Barclays, are now considering how the assumption that bitcoin is lined to money the technology underpinning digital currency – laundering and terrorists­ Education is improving on commonly called ‘the blocchain’ or ‘blocchain’ this point, but misconceptions continue to affect the – could in itself revolutionise finance­ €hile many of way that many people thin about bitcoin­ these potential applications are medium term the Blocchain technology is liewise sub‡ect to certain development cycles in the industry mean that now clichés­ ˆn the first instance, attention focused is the time for companies to begin asing how this closely on bitcoin itself and how the digital currency technology could benefit them­ was going to change the world­ ˆn the last couple ‚hallenging the misconceptions of years, this focus has shifted and many people are now repeating the assertion that blocchain technologies are more interesting than Bitcoin Bitcoin may have attracted significant attention the currency­ around the world – but alongside all the hype, many ’ www­insidebitcoins­com“news“bitcoin-venture-capital-funding-pace-1-billion-Š‹1‘“”‹••‘ Š of ‘

–nderstanding blocchain ˆn recent years, there have been many different processes which are genuinely different, because of initiatives intended to remove paper from the the way many of these technologies wor­ „he tric „he first port of call should be to gain an economy­ Žowever, in many cases the new is in something called “consensus”­ ie consensus understanding what maes this technology so special­ technology has simply recreated old processes in in a room full of people, computers use algorithms to Blocchain technology, which underpins bitcoin, has a a new way, or has led to solutions which continue to reach consensus about the truth­ „his contrasts with number of interesting attributes­ „here are two main rely on paper­ …or e‰ample, the process of signing a today, where every ban, government department types of Blocchain „echnology cheŸue was digitised by creating a cheŸue guarantee and law firm has their own paper copy of the truth­ ˆf card, followed by a PˆN card – but the new model we could rely on maths to “sync” the truth between 1­ –npermissioned continues to wor on the same hub and spoes us all, we coud cut out a lot of wasted bac and forth Š­ Permissioned —sometimes ‘distributed ledgers’ model that the previous cheŸue system had used­ paper from the lies of or ‘replicated shared ledger’˜ ˆn other cases, such as tenancy agreements, there • „rade …inance is a continuing need for a piece of paper that will ™n –npermissioned blocchain is an open, hold up in court­ • and Registry decentralised ledger which records the transfer of value­ Every transaction is cryptographically chained ™ Permissioned blocchain technology could, in • †ocial €elfare to the previous transaction­ „he result is contrast, replace certain paper-based processes with a permanent, immutable and verifiable record of • ˆnsurance truth that everyone can see­ „his is useful when • ¢£‚ and ™¤ no central entity is available to verify a transaction­ „o name ‡ust a few­ –npermissioned Blocchains are “censorship resistant”­ Nobody can edit them, meaning if you Blocchain and distributed want to record a statement of fact with your name ledgers business on it —for e‰ampleœ “™lice would lie to pay Bob £1” or “„his is my last will and testament”˜, –npermisioned ™s outlined above, whilst Bitcoin had a number blocchains are a great place to do this of breathroughs such as the creation of a widely ™ Permissioned blocchain technology is often far available and very difficult to attac permanent more appealing to enterprise and financial services­ and censorship resistant database­ †ome of these „o understand this we need to e‰plore one of the characteristics could also mae this technology biggest problems with financial services and industryœ particularly relevant to a number of the cost of paper­ financial processes­ ” of ‘

…rom regulatory reporting to derivatives settlement, Putting it all together the various blocchain technologies could be used to transform the many ey services industry sectors, ¦ne interesting development is Everledger, reducing cost, increasing the speed and transparency a permanent ledger for the certification and for data and reducing reliance on paper­ transaction history of diamonds­ ˆn the past, different stages of a diamond’s value chain have tended to †¤™R„ ‚¦N„R™‚„† “€hen paper nows be disparate and paper-based the producer of the what you told it to do” diamond, the shipping and the insurance would all have been recorded using pieces of paper – all of ˆmagine a contract that you sign, where all of the which can be lost or forged at any point­ ey clauses could automatically e‰ecute­ „his is the promise of a “†mart ‚ontract”­ ˆf we assume „oday, these different strands can be brought the blocchain technology of choice is helping eep together­ ¨rawing upon blocchain technology, records in sync between multiple parties —e­g­ which Everledger provides an immutable record of the shipping container is which television in˜, then †mart ownership of diamonds which allows individual ‚ontracts are the logic layer on top that allow for “if ‡ewels to be identified and traced using a common this, then do that” conditions to be actioned directly database­ „he diamond’s serial number is registered from the agreement­ against the database —or ‘blocchain’˜ and users such as insurance companies or law enforcement „aing our television e‰ample further­ €hat if the agencies can access the entire history of a specific current buyer had agreed they would buy 1‹‹‰ diamond, including details such as changes of televisions from the seller so long as the maret price ownership and insurance details­ ˆf a diamond is ¦ther items may also benefit from this type of audit for televisions stayed above £1§ ™ smart contract stolen and recovered on the other side of the world, trail­ €ith greater attention paid to the origins of would record this “clause” in the same way a paper this database can allow the police to determine items such as organic and fair trade produce, a contract would­ „he difference however is if the Ÿuicly the history of the item and its blocchain could certify the history of specific items, price of a television fell below £1, the smart contract insurance details­ Everledger is live today with including the origins of the food, whether the farm could change the owner of the television bac to over ©‹‹,‹‹‹ diamonds being traced on their was certified —e­g­ by the †oil ™ssociation˜ and the the seller­ blocchain technology­ amount paid to the farmer­ ‚orporates may wish to consider how †mart ‚ontracts may change their business­ ¥ of ‘

¦vercoming the obstacles come into being­ ˆt’s also clear that the security and ˆn conclusion, Bitcoin was a significant breathrough controls associated with blocchain technology will – but it’s not the whole story­ „he technologies „he ey gap is education, we often conflate “„he need development before many of these applications around bitcoin have the potential to transform Blocchain” and “™ Blocchain”­ „his terminology is can become mainstream many different processes and companies should be especially tricy because the technology is so new, discussing these developments at the board level terms are emerging daily to try and understand and „hat said, the opportunities are so significant that and asing how this technology could help them and mae sense of it­ it’s a Ÿuestion of when, not if, these applications whether they should be investing in it­ will emerge­ ˆn order to smooth the way for „his is a nascent technology and while the greater development and adoption, financial opportunities are e‰citing, certain obstacles will need service providers and start-ups will need to to be overcome before some of these use cases can collaborate closely­ About the author †imon „aylor Blocchain and ¨istributed edger †ub‡ect ¤atter E‰pert Named by ‚ity ™¤ as one of the „op 1‹ most influential people in …intech, †imon’s wor at Barclays focuses on understanding the impact of this new technology on Barclays businesses and clients barclays­com“corporatebaning Barclays is a trading name of Barclays Ban P‚ and its subsidiaries­ Barclays Ban P‚ is authorised by the Prudential Regulation ™uthority and regulated by the …inancial ‚onduct ™uthority and the Prudential Regulation ™uthority —…inancial †ervices Register No­ 1ŠŠ«‹Š˜­ Registered in England­ Registered number is 1‹Š•1•« with registered office at 1 ‚hurchill Place, ondon E1¥ ‘ŽP­ ˆtem Ref B¤¥‹©”©”­ ¬uly Š‹1‘­ ‘ of ‘