American astronomer and educator Clifford Stoll wrote an article in 1995 called ‘Why the Web won’t be Nirvana’. It still gets passed around as an amusing discussion piece highlighting the doubts people had about the internet.
Stoll was sceptical about the web, especially “cyber business”: “So how come my local mall does more business in an afternoon than the entire Internet handles in a month?”
The Clifford Stolls are still out there. You’ll find some of them these days expressing doubts about blockchain technology.
But plenty of very reputable and smart people have recognised blockchain could be the building block for something truly transformative, as revolutionary as the internet. This is why Australia should continue to play a leading role in its development.
Blockchain is still in its infancy (think internet circa 1995) and there’s work to be done in creating the infrastructure for it to underpin something as complex as the global financial system.
The basic concept behind blockchain is compelling. In simple terms, imagine giving money to a charity and then being able to see and verify for yourself where that charity has spent your donation. Financial and legal transactions become transparent, verifiable and incorruptible.
Governance issues like privacy, security, and interoperability will be paramount over the next few years, which is why the role Standards Australia has assumed at an international level to spearhead a technical committee developing standards for blockchain is so crucial.
“Leading the ISO blockchain committee will place Australia in the perfect position to help inform, shape and influence the future direction of international standards to support the rollout and deployment of blockchain technology,” Standards Australia CEO, Dr Bronwyn Evans, said last year.
In financial markets, blockchain is already being trialled by the Korea Exchange, Nasdaq, London Stock Exchange, Tallinn Stock Exchange, and the Tokyo Stock Exchange. Encouragingly, the Australian Stock Exchange is also among the markets looking to integrate the technology into its operations.
The ASX started down this path last year and has invested $14.9 million (about a 5% stake) in US company Digital Asset Holdings to enable the exchange to move towards blockchain integration. The move has attracted some criticism, with one critic questioning the ability of Digital Asset Holdings to deliver on its promises.
Despite concerns, the ASX reported in its consultation paper released this month (March 2017) that the gradual replacement of the CHESS clearing and trades system has been viewed positively so far.
CHESS facilitates the clearing and settlement of trades in shares, and provides an electronic subregister for shares in listed companies. It acts as an intermediary for share transactions.
Blockchain is based on a peer-to-peer network of verification. The network, rather than an intermediary, records the trades. This is possible because blockchain is transparent to everyone in the network and unalterable by anyone in the network.
That’s one of the big benefits of the technology; it removes the middleman from so many scenarios, which promises to result in lower costs, less red tape, and increased trust.
In the banking sector, CommBank has been one of the leaders among global banks investing serious money and brainpower into blockchain and digital currencies.
Last year, CommBank, along with Wells Fargo, undertook the world’s first open account transaction using blockchain and Internet of Things technology, facilitating a shipment of cotton from the US to China for the company Brighann Cotton.
In January, CommBank and the Queensland Treasury Corporation issued the first ever government bond using blockchain, not only in Australia but in the world.
Of course the banking industry and related sectors stand to lose a great deal by waiting for fintechs to take the lead on blockchain. Blockchain promises to do away with a lot of the bread-and-butter middleman work banks and other financial institutions do. It’s in the interests of big banks to jump in and lead before it’s too late for them.
Some major players are already spooked by the possibility of ‘walled garden’ versions of blockchain that might lock them out. Big tech players like Microsoft, Google and Amazon are already investigating the role they will play in the new blockchain economy, which makes some big banks nervous.
Proprietary systems that lock users in rather than open systems that allow for wider participation and innovation could inhibit the growth of the blockchain economy.
The future of blockchain is still unclear. This makes it even more important for Australian governments, regulators and businesses to play a part in encouraging an open system that allows for smaller players to innovate and bring blockchain closer to mainstream adoption as quickly as possible.
As with the internet, an open system lets smaller players thrive and create innovative products. The principle of open source access is the whole reason the internet’s developed and grown the way it has.
We need the same with blockchain. Otherwise the Clifford Stolls of the world might win the day and hold us back from the next big thing.
Chris Strode is the founder of Invoice2go.