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The technology underpinnings of the blockchain could provide organizations with the ability to complete digital transactions with less friction and increased confidence.

The blockchain—the distributed ledger technology on which all transactions of the cryptocurrency bitcoin are recorded—is drawing increasing interest not only from financial services institutions (FSIs), but from companies across a range of industries, which recognize the potential to use the blockchain’s underlying technology to enable the creation of trusted, immutable digital transaction records.

The blockchain protocol for posting, clearing, and settling transactions relies on a network of nodes that can serve as a “trusted intermediary,” verifying transactions and providing confidence to all involved parties. “The promise of blockchain is the removal of many third parties, such as record keepers, asset custodians, notaries, and certain government agency functions, during transactions. We would not need them anymore, because the blockchain would provide the necessary level of trust,” said Eric Piscini, a principal at Deloitte Consulting LLP, during a January Dbriefs webcast on the topic.

Although the number of live implementations of blockchain is currently slim, the technology could have a wide range of benefits and applications, says Gys Hyman, a principal at Deloitte Consulting LLP. The technology can enable the near real-time, frictionless transfer of assets, and the creation of a public history of transactions that would not preserve the identities of the participating parties nor their data, only proof of the transaction’s existence. These records are irreversible, which can prevent double spending, fraud, abuse, and manipulation of prior transactions.

FSIs, in particular, have expressed interest in the blockchain for the following use cases:

Payments, including B2B or B2C remittances. By accelerating payment timelines and making them cheaper to transact, providers could improve their margins and provide new services such as micropayments.

Trading and settlement, including clearing, reconciliation, and trade-matching. This could significantly reduce risk, operational costs, and complexity.

Smart contracts, including contracts related to financial derivatives, corporate bonds, real estate transactions, smart investment plans, and others. These would be tamperproof and self-executing, with transfer-of-ownership provisions coded into the contracts.

While the applicability of blockchain technology is perhaps most obvious in financial services, organizations across a range of industries could benefit from it, Hyman says, resulting in lower transaction costs, increased information-sharing, and the elimination of the need for trusted third-party intermediaries. In particular, blockchain technology could be used for:

Intellectual property. Encrypted and time-stamped documents could be stored and used to document the ownership of intellectual property without revealing the underlying proprietary information.

Identity management. A cryptographic, distributed network could be used to verify people’s identities, using information derived from passports, social security numbers, tax identification numbers, and drivers’ licenses.

Medical records. Patients could hold the private key used to encrypt their medical data stored in the blockchain, and use public keys to share selected information with doctors only when desired.

Transfer of property. Fractional bitcoins marked with certain properties could be used to represent digital or physical assets, such as a house or a car, for the purpose of exchanging land deeds or automobile titles, for instance.

While the blockchain holds much potential, there are few business instances live in production, according to Piscini. “We are at the beginning of the innovation cycle, so no one is late to the party, unless they are still trying to understand what blockchain is,” he says. He advises organizations to exercise discipline when evaluating blockchain solutions. “Scrutinize your business processes and where blockchain would add value; otherwise, you’ll spend money on use cases and solutions that aren’t right for you.”

For those organizations contemplating blockchain technology, Piscini recommends:

Set your rules. Create embedded rules restricting the transactions performed. Every transaction will be checked against these rules by every node in the network; those that fail will be rejected.

Pick your validators. The blockchain is intended to be an authoritative, final transaction log. Thus, have a clear idea of your validators, why you are choosing them, and why you trust them.

Back your assets. When the blockchain is used as an asset ledger, consider who stands behind the assets, and what mechanism you are using to convert units on the blockchain to physical assets.

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Blockchain technology holds a great deal of potential for a range of organizations. “If you’re disciplined with your innovation, you can really identify ways to use the blockchain to streamline processes and create new opportunities,” Piscini says.

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