Blockchain: More blips in the Singularity
AI, robotics, and blockchain are having a profound impact on business and society and will continue to do so over the next decade. Knowledge work will experience productivity increases or outright automation. Technology has replaced teams of accounts like the image below. Tomorrow, pools of law clerks and more advanced knowledge workers may also be gone as more of their work is automated. Today banking is the focus of blockchain technology.
It is becoming more obvious and the pace of change is increasing. The hype around Blockchain rivals that of the .COM era as the Internet was being born. Technologists are fascinated by the elegance and simplicity. Of course technology for technology sake does not achieve much: A hammer looking for a nail. Or as BitPay CEO Stephen Pair told me, blockchain is more at the stage of a block of wood and some iron trying to make a hammer to hit a nail. The optimists are exercising the technology on various use cases with the confidence of an oil prospector.
Well, nails are beginning to emerge and forward thinking companies are building use-case based hammers to hit them with. While many in banking are attacking the “Frontal Assault” of blockchain (as discussed in other writings) the team including JP Morgan, Citigroup, Bank of America, Credit Suisse, trading service provider Markit, and technology firm Axoni aimed slightly to the side going after Credit Default Swaps. A CDS is basically an insurance policy: if a bond goes bad, the policy is paid. The business challenge is keeping track of the over-the-counter products. Today, there are many parties in the value chain: The seller, the buyer, Markit, Wall Street’s central book keeper Depository Trust & Clearing Corp, and others. The CDS’s and bonds can be traded further complicating the chain of custody. The contracts have rules, the transaction is distributed, it needs to be secure, but also needs to have a shared ledger for all to see certain elements of the contract.
This use-case is an outstanding application of blockchain. It’s characteristics meet the strengths of blockchain. Bitcoin has strengthened and proven the security of the technology (the CDS use case leverages a private/permissioned blockchain instead of Bitcoin’s public blockchain). The distributed nature allows the different banks access and consensus based security. The common ledger allows specific elements to be publicly exposed. Finally, this use case exploits the “smart contract” technology along with automated rules based enforcement (or in this case payment).
The technology is elegant and efficient. It solves a variety of problems. But what is more fascinating is how disruptive it could be: “Analysts at Autonomous Research say using blockchain could cut trading settlement costs by a third, or $16 billion a year, and cut capital requirements by $120 billion. A recent report by Citigroup forecast that automation including blockchain could eliminate two million banking jobs, largely in processing, over the next decade.”[1] This is a dramatic increase in productivity. It frees up massive amounts of capital in an economy of constrained capital. But the automation of as many as 2M knowledge worker jobs is ground shaking. Others speak to the societal implications but it is clear this level of automation is a true disruptor.
Banking is leading the charge. However applications in the “Adjacent” space are emerging. Business are forming right now whose future one cannot fully understand. But the impact will be felt in business to business transactions as well as consumer applications beyond Bitcoin.
[1] Demos, T. (2016, April 7). Bitcoin's Blockchain Technology Proves Itself in Wall Street Test. Retrieved April 18, 2016, from http://www.wsj.com/articles/bitcoins-blockchain-technology-proves-itself-in-wall-street-test-1460021421
