In a way, it all started with bitcoins, that cryptocurrency that only exists in cyberspace and yet has a cashable value. The technology behind it allowed people to, in effect, have their own ledger, while at the same time keeping those ledgers synced. This replaced the old-style method of having a single master ledger and everyone else having a copy of that ledger—and all the problems that go with trying to keep multiple copies up-to-date.
You can tell by the fact that I’m using the word “ledger” that we’re talking about something banks are interested in. Further evidence comes from the fact that Bank of America has filed 10 blockchain-related patents
and IBM, Intel, Cisco, the London Stock Exchange, JP Morgan and Wells Fargo, have formed the Open Ledger Project
You can think of a blockchain as a really clever cloud-based spreadsheet. Like bitcoins, it all depends on trust, and users are meant to be able to trust its transaction and tracking procedures completely. This removes the need for a trusted human institution to act as an intermediary. When I say trusted human intermediary, I mean a bank.
Using blockchain, you don’t need a bank to act as an intermediary for a wire transfer (and take its cut from the money being transferred), you can let blockchain act as the authority and circulate currency securely on your own. In addition, by using the blockchain technology, you can create what’s called “smart contracts,” which make it possible to transact fairly hefty deals, quite safely. E.g., both parties could buy and sell a house without worry.
You might ask what’s in it for IBM and those other Open Ledger Project members? Very simply, it’s good business. Think about the standard model for a company. You buy raw materials form a number of sources, you make some stuff, and you sell it to a number of other companies. Each of these involves some sort of buying and selling—so why not use blockchain to coordinate these activities. You can use the ledger to ensure all the materials are in the right place at the right time—which means that you’re also in control of scheduling, too. This increases the “trust” that can be built into the supply chain.
The other big draw for IBM is the use of Linux. Remember IBM announced the LinuxONE mainframe last year. The “Open” part of the Open Ledger Project is all about Linux. Linux now runs on a mainframe and every size of device down to your smartphone (Android smartphones anyway). The use of Linux stops any organization (like Microsoft, Facebook, Amazon, etc.) taking exclusive ownership of the technology.
The next big question is why, if blockchain removes the need for banks, would banks like Bank of America, be interested in the technology? Is it just the old adage that you have to get behind someone to stab them in the back? Are they joining in in order to undermine the technology? No, it looks like banks can see a way to cut their costs and revamp their backend operations. Blockchain technology gives banks a way to respond to the competitive threat that bitcoins and other cryptocurrencies poses to traditional money. Banks are claiming that blockchain will change the future of finance by improving their efficiency and security.
It looks like 2016 (or definitely 2017) will be the year of the blockchain. Every company will have a blockchain, or be on a blockchain or several ones. Organizations and then individuals will be able to exchange anything they have from the smallest eBay item to the company itself, without needing to use a bank.
This is definitely a technology that we will hear much more about.
Trevor Eddolls is CEO at iTech-Ed Ltd, an IT consultancy. A popular speaker and blogger, he currently chairs the Virtual IMS and Virtual CICS user groups. He’s editorial director for the Arcati Mainframe Yearbook, and has been an IBM Champion every year since 2009.