Blockchain Beyond Bitcoin: Transforming FinTech, Healthcare, And More
The origin of blockchain dates back to 1991, when researchers Stuart Haber and W. Scott Stornetta outlined a system to document timestamps that could not be altered. However, it is most widely known as the underpinning of Bitcoin, introduced to the tech world when Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” Soon after that, Blockchain became the next possible bedrock of record-keeping worldwide and the underlying distributed ledger technology (DLT) that powers many of the most popular digital currencies.
The goal of blockchain is to digitally record information to be distributed but not tampered with. It is an open, decentralized ledger that records transactions and entries that are confirmed by peer-to-peer networks and encrypted. The data is stored into a “block,” or a fixed event that has been approved and locked into place. Each block is then added to the “chain” of events, leading to the methodology’s moniker. Each record is easily verifiable and incorruptible. The network cannot be influenced by a single party nor taken down because it exists in multiple distributed places.
Though Bitcoin is the most extensive application of blockchain, an essential thing to understand is that blockchain can be used to record any number of data points across any industry immutably. FinTech is following right behind cryptocurrencies in blockchain adoption, particularly during the compressed disruption in 2020 that is likely to continue this year. Let’s take a look at why and how other industries and applications will, and should, be next.
The digitization of financial instruments such as digital assets, smart contracts, and programmable money multiplies the benefits of blockchain by providing unprecedented levels of connectivity and programmability between products, services, assets, and holdings. A full transaction history ensures data integrity in a single shared source of truth by digitizing financial instruments. Blockchain supports programmable capabilities to be built into the assets themselves to manage tasks associated with governance, voting and information rights, compliance, and KYC/AML. The automation of processes reduces the potential for errors, delays, and operational and transactional costs, leading to a more transparent, more accountable system. Ultimately, a more streamlined process that reduces costs and aligns stakeholders will lower the cost of capital. This, in turn, will create more liquidity potential and open up possibilities for new digital instruments.
Jamie Finn, President and Co-founder of Securitize, a licensed broker-dealer/ATS and registered transfer agent for digital securities had this to say about the industry:
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“It takes a decade to make an impact on an industry and another decade to transform it, and I think we’re about three years into that second decade. In terms of blockchains, there is no AWS yet. We’re still waiting for a scalable, reliable solution that embraces economies of scale. Software should get cheaper on a per unit basis. Blockchain isn’t there yet.”
One would be hard-pressed to find a use case in financial services that wouldn’t benefit from blockchain, save for in-person payments given the single-digit TPS (transactions per second) vs the modern payment rails that operate in the tens of thousands of TPS. Trade finance, asset management, capital markets, banking and lending, insurance, etc. all would realize increased privacy, accuracy, and security from the distributed, immutable ledger technology. On cross-border settlement transactions alone, a report by Jupiter Research shows that blockchain deployments will enable banks to save up to $27 billion by the end of 2030, reducing costs by more than 11%. Financial institutions acknowledge that Blockchain technology will save billions of dollars for banks and major financial institutions over the next decade.
Payments is a category on which blockchain efforts are concentrated. This is an obvious conclusion, being that on the blockchain, AP/AR is easily tracked and verified, duplications are virtually impossible, and smart contracts can automate the process based on agreed-upon terms. However, cryptocurrencies have proven too volatile and slow to be an adequate payment solution in most cases. Few merchants can feasibly accept a payment method that takes hours to process when the value may swing drastically.
Paystand, a B2B payments solution, learned early on while enabling Bitcoin transactions, that its traditional banking partners were worried about the direct value transfer between parties using blockchain technology. On that path, it was also unable to provide the privacy and transparency needed for B2B payments, which sometimes involves a third-party verification such as an insurance provider or title company. The company discovered that Fiat (a government-issued currency not backed by a commodity., e.g., the dollar) or credit is the most feasible form of payment for traditional business payments.
Paystand saw an opportunity to leverage blockchain and designed a permission-granted Proof-of-Authority (PoA) chain that it calls “the Assurety Chain,” which uses a hybrid blockchain solution to optimize, create, manage and verify non-fungible assets. This is essentially a blockchain-verified stamp of approval that the transaction has taken place, confirmed by both parties while walking a line somewhere between Quickbooks invoices and truly disruptive technology. With $1B in transactions processed by 200,000 enterprise customers in 2020, and 1007% three-year revenue growth, I think we’ll see more from Paystand. I also think it faces significant competition this year as we’ll likely see legacy processors like IBM and FirstData come to play more prominently in the blockchain space.
Beyond Bitcoin and finance
There are plenty of other examples of blockchains that function for something other than cryptocurrencies (primarily Bitcoin, Ethereum, and Ripple). Moreover, companies are building their own blockchains for industrial and business purposes other than pure finance–from the more obvious uses of supply chain management and real estate to the less obvious uses of voter certification and healthcare (including Covid 19 vaccination records). Let’s take a look at some more of these potential applications.
The disruptions caused by Covid-19 struck organizations at all levels, accelerating the need for digitization down the supply chain. Supply chain data is not always visible, available, or trusted. By moving from spreadsheets and emails to permissioned blockchain solutions, organizations can maintain strong data quality and integrity during this transformation. While some supply chain managers are using blockchain, many are still in the proof of concept phase or at some nascent stage of adoption. Still, the benefits are apparent, and the transition inevitable. Blockchain supports the multiparty process around data that is shared and trusted across various boundaries. This allows for location identification, delivery confirmation, condition of goods, and data accuracy–all challenges that plague many supply chain firms.
The real estate industry is embracing blockchain in some exciting ways. By digitizing and tokenizing assets, applied using blockchain, investors can buy a fractional interest rather than an entire asset or portfolio, providing data security and integrity. This also provides a lower barrier to entry and increased liquidity options. Owners and tenants can use blockchain to check credit and rental history, make payments, and submit maintenance tickets. Real estate dealings have dozens of transactional touchpoints across the lifetime of a deal. By borrowing the inherent trust of blockchain, migrating the data and actions of those touchpoints to a distributed ledger, and automating the process using smart contracts, brokers and agents will save time, eliminate rework and cut costs. In a blockchain world, the Multiple Listing Service (MLS) database would provide a far more transparent ledger system for brokers and agents to see the entire transaction history of a property. At a time when daily purchases and leases are vast, this could be incredibly valuable.
No matter where you stand on the political spectrum, everyone benefits from more public confidence in election results. A core value proposition of blockchain is that it can immutably hold data in a way that’s nearly impossible to alter. The ledger is public, so any irregularities can be identified and cannot be hacked. Votes are tallied more efficiently and effectively as each ballot is attributed to one ID; creating a fake ID is impossible. Blockchain technology can make the voting process more easily accessible while improving security.
According to a Data Bridge Market Research study released in December 2020, Blockchain technology in the healthcare market is expected to gain market growth in the forecast period of 2021 to 2028. The market is expected to grow at a CAGR of 21.70% in the same period, perhaps even further influenced by patient demand once they realize the benefits explored below.
For healthcare, the distributed ledger methodology provides an unprecedented level of privacy and security for all stakeholders, ensuring vigorous data integrity while giving patients control over their personal data. Most healthcare organizations have yet to operationalize blockchain, but the industry understands the technology can address healthcare management’s most pressing challenges. With the increased usage of medical devices and apps, blockchain could be the link that bridges the data silos this connectivity potentially creates. Patient consents, information governance, and changes from multiple sources can all be entered and verified on a secure, private ledger. Vaccination records (including the Covid 19 vaccination) will also eventually need to be verified to facilitate the safe return to workplaces, schools, and some travel.
Big Tech investments
A significant indicator that these industries and applications of Blockchain will succeed and become a mainstream technology in the next few years are the investments that some of the world’s leading tech companies are making in it.
IBM has 1,600 business and technical experts working on more than 500 IBM Blockchain projects. Built on a public cloud system, the company is putting a lot of heft behind Blockchain, reimagining businesses to renew trust and transparency where collaboration is encouraged. IBM and Salesforce have partnered to deliver verifiable vaccination records and health passes using Blockchain.
As art imitates life, IBM’s BlockParty further demonstrates its investment into Blockchain. This “virtual celebration bringing the transformative power of blockchain to life through art” is a meaningful way to explore these tangible effects of a seemingly intangible thing.
Oracle’s offerings, including a cloud service, an on-premise edition, and a SaaS application for the supply chain, show its commitment to the technology. Its roadmap provides an entry point for developers just coming into the space while giving enterprise-level customers the confidence of the muscle behind the platform.
Major cloud computing and virtual machine firm VMware, owned by Dell, launched VMware Blockchain, an enterprise-ready blockchain platform to enable secure data sharing and maximize workflows in the financial industry. VMware Blockchain was initially tested by the Australian Stock Exchange and will replace its current system by 2023. After several years of beta testing, the company’s blockchain platform launched fully in November 2020.
This week at the Consumer Electronics Show (CES), I tuned into a panel on the role of technology in solving the next decade’s most difficult global challenges. When asked which technologies the panelists were most excited about, CEO-elect of MasterCard, Michael Miebach, named Blockchain. Elaborating, he said:
“…there will always be sellers, and there will always be buyers, and some of them don’t know each other. Who is at either end of the transaction, and what is being exchanged? Proof of providence, identity—those are all things Blockchain will help us do. You throw that on top of the other three (Accenture CEO Julie Sweet had already named Cloud, AI, 5G), and you complete the package.”
I couldn’t agree more.
Disclosure: My firm, Moor Insights & Strategy, like all research and analyst firms, provides or has provided research, analysis, advising, and/or consulting to many high-tech companies in the industry. I do not hold any equity positions with any companies cited in this column.
Senior Analyst, FinTech