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As investments in blockchain technology gain momentum, enterprises in a variety of sectors are contemplating how they'll use the technology to conduct transactions via smart contracts.
With this in mind many IT services companies that have customers in vertical markets such as financial services, insurance, healthcare and other industries are developing strategies to help their clients leverage emerging blockchain technology applications.
Blockchain technology, which is a type of distributed database that stores, organizes and manages a permanent and tamper-proof ledger of transaction data across multiple computers, promises to transfer value, build trust and reduce third-party participants. Use cases range from international money transfers to smart contracts that execute and enforce commercial agreements.
David Treat, managing director and global head of Accenture's financial services industry blockchain practice, said there are three concepts at the heart of the excitement over, and value of, distributed ledger technology (DLT) or blockchain systems.
1. Reduced costs and simplified processes that stem from participants in a particular industry or business being able to confidently share access to the same data and move away from a data-messaging based model.
2. Increased security as DLT solutions provide data-element level protection and access control, instead of a layer of security that wraps around a database, which is generally the case with other database types.
3. Increased resilience as the DLT or blockchain data stores can be spread across a large network of nodes instead of being concentrated in what is typically a single master source of data with a few backups in more traditional database architectures.
"DLT or blockchain will drive material improvements in operational efficiency and infrastructure costs by eliminating unnecessary work caused by the need to reconcile data," Treat said.
To tap into new business opportunities, Accenture opened a specialized practice within its financial services group earlier this year. The practice will help customers implement blockchain technology. Treat expects blockchain platforms to utilize cloud computing and security technologies. He also said blockchain has the ability to mutualize data registries, or replace them, because one version of the data is shared by all the participants in the network. Supporting this will be new software protocols, storage, query management and key management solutions.
Blockchain technology: Applications for vertical markets
Brigid McDermottvice president, blockchain business development, IBM
A recent study from IBM shows how fast blockchain is growing in the financial services sector. The report, which surveyed 200 banks in 16 countries, found that 15% of the banks in the study expect to have blockchain in commercial production in 2017.
Furthermore, the technology will significantly improve time, cost and risk in three areas: reference data, retail payments and consumer lending. The IBM report also concluded that blockchain will have the greatest effect in opening up new business models in trade finance, corporate lending and reference data.
"If blockchain evolves the way that I think it's going to evolve, every transactional system should be done on blockchain," Brigid McDermott, IBM's vice president, blockchain business development, said. "Blockchain is so transformative that all transaction-related processes should be reevaluated, with every company out there re-looking at how they do transaction-based business."
Other sectors are also exploring blockchain technology applications. Recently, Capital One announced that it intends to test blockchain for healthcare claims and analytics.
On the insurance front, The London Market Group, an insurance and reinsurance industry trade organization comprised of large firms such as Allianz, AIG, and Lloyds Bank, will explore the use of smart contracts and blockchain for potential application in the wholesale insurance market.
Blockchain adoption will spawn new business models and new processes and platforms will be established. In this burgeoning environment, McDermott said, IBM is in discussions with systems integrators who need to be educated on what blockchain is, why it matters, how it is going to affect companies, and what should be built.
A role for IT service providers
She also said managed service providers (MSPs) have a role to play and should think differently about the services they'll offer on a blockchain platform.
"We are talking to MSPs about how they can expand the security of the whole ecosystem because we are not building solutions that one organization is using anymore, we are building solutions that just by definition need to be more open as they will be more broadly used -- by at least two, but generally hundreds or thousands of entities," McDermott said.
As blockchain technology becomes more familiar, IT consulting and service providers will have an opportunity to approach clients with a discussion about how the technology can change or even disrupt their business practices.
"I have three types of conversations with clients," said Eric Piscini, global and U.S. blockchain leader, Deloitte Consulting LLP. "The first one is about ideas, innovation, and strategy sessions with our clients to identify where blockchain will disrupt them and what strategies are required as a defense mechanism, from technology to investment and intellectual property. The second one is how can blockchain streamline operations and cut costs. The third, and most exciting, is to develop new services harvesting the benefits of blockchain technology."
Barriers to blockchain implementation
Piscini said organizations working on blockchain solutions should keep in mind that as the technology continues to develop there are barriers to implementation that are still being worked out. These include the lack of a regulatory or legal framework that governs transferring value using a blockchain platform.
"Mass adoption will not happen unless we have a regulatory framework and today these frameworks are inconsistent at best, and nonexistent in a few cases," Piscini said. "In addition, our legal environment needs to evolve to account for specific smart contracts, which are business logic running on blockchain and automatically executed, to be recognized in court."
Another issue is that blockchain is still maturing.
"If you follow the technology aspect of blockchain you can see that the technology is changing almost every week, so building enterprise-grade solutions on a changing technology is not very easy. Organizations will have to design and architect their solutions to account for that or strategically decide to wait for the technology to mature before they build on blockchain," Piscini said.
For its part, Accenture is putting its own stamp on the technology. The company recently announced that it created a new capability that will edit blockchain technology in "extraordinary" circumstances to resolve human errors, meet legal and regulatory requirements and address other disruptive issues, while still maintaining key cryptographic features.
Treat said immutability is one of the key features of blockchain offering unparalleled data quality and lineage and this will and should not change. However, these are early days of the technology and computer code is only as good as how it is written, which is done by humans and therefore prone to error or mischief.
"For blockchain to be adopted at an enterprise level, in rare and exceptional circumstances the need to fix things when they go wrong will be necessary for a variety of reasons, not the least of which is from a risk and regulatory perspective," Treat said.
He cautioned that in many, if not most, cases, updates to data on a blockchain will be sufficient, but in rare cases where this is not acceptable, where there are no possible reversing transactions, and where data has to be removed, the only remedies currently available are blunt in nature, namely forks to the chain.
"One need look no further for examples than the recent Ethereum-based DAO 'hack' that required a hard fork to rectify the situation," Treat said.
However blockchain technology applications evolve, IT services companies can gain new business in an emerging technology that has the potential to offer them new revenue streams. This is just the beginning.
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