Whoever wants to see the impact of innovation should go to the Open-Air Museum (Openluchtmuseum) at Arnhem. Among high trees, between footpaths, you can see the victims of disruption in a row: from windmills to the post office, from the launderette to the printing company.
It’s a fact that blockchain technology is also going to reduce institutes to heirlooms. Even if only because the blockchain makes work a lot more efficient in some areas. The important question, however, is what work exactly is more efficient thanks to blockchain.
The blockchain technology in its optimum form is only really useful to a very few. It was, after all, invented for crypto currency, such as Bitcoin, and is based on the idea that everything is public, that everyone has access. For that reason, banks can do nothing with it. They exist by the grace of the confidentially imposed by the law. Still… blockchain does offer inspiration to check whether business processes are still organised optimally, even for banks.
Recently, for example, a consortium of 42 banks closed an experiment in R3 start-up with a ‘private blockchain’. Currently, all 11,000 different banks in the world use their own IT system. These systems do not ‘understand’ each other. A transfer has to be ‘translated’ from one system to another. That’s been the case since the 1970s and it costs money – a lot of money, even, for an international transfer.
Inspired by blockchain, the 42 banks decided to set up a joint general ledger, in which they experimented with issuing, trading and settling financial products. Access to the public register at Bitcoin in this case was restricted, and that to the participating banks. Only they were allowed write in it. This is a very small step in the direction of blockchain, but the advantages of this so-called private distributed ledger thus became clear: a joint register, or rather a ledger, makes transactions simpler and cheaper. Why pay 35 dollars for an international transaction when you can do it for 35 cents?
The experiment of the banks in the R3 start-up shows that the banks are waking up. Insurers and the medical sector are also waking up. Lawyers are preparing themselves for smart contracts that can be included in the blockchain. Mortgage at the civil-law notary? That, too, is possible in the blockchain. Personally, however, I think that a public blockchain with editing rights for a restricted number of institutions is especially useful to public services. The Land Registry, the Road-Traffic Department, the Chamber of Commerce; these are in fact public databases that can ‘run’ on blockchain technology.
For example, home ownership can easily be transferred via the blockchain. You don’t need a 15-storey building stuffed with administrators to do that. The same goes for training: create a training database with editing rights for educational institutions and everyone can check whether someone actually has the diploma they claim to have. The only weak link is the connection to the real world: who checks, for example, that a plot of land really exists? That will remain hands-on work, or rather, can become a future business opportunity. Blockchain can simplify all these processes, drag them into the 21st century. And the institutions that come with them? They can join in or reserve their spot in a museum.
Author: Dennis De Vries, senior manager KPMG
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