In the early 1990s, Austin Hill helped build one of Canada’s largest Internet service providers: Total.Net. Today, Hill is CEO and co-founder of Blockstream, a Montreal-based firm working on a technology he believes has the power to change the business world just as much as the Internet did.
It’s called the blockchain, the technology that underlies the cryptocurrency bitcoin. A blockchain is essentially a transaction ledger, much like the record-keeping systems employed by conventional financial firms, such as banks. Traditional ledgers are owned and maintained by one institution, and access to them is restricted to prevent tampering. A blockchain, by contrast, is hosted on a network of computers, which verifies every new bitcoin transaction every 10 minutes, then adds a ‘block’ made up of those transactions to the chain of transactions that came before. The result is an “immutable cryptographic ledger that is open, available to anyone and can be shared by anyone,” says Hill.
Blockchain technology’s potential beyond bitcoin is huge: It could replace the multi-trillion-dollar market in third-party verification services that underpins the modern global economy. Services and institutions that act as middlemen to facilitate and verify financial transactions, contract relationships, record-keeping and asset transfers could all be disrupted by blockchains, which proponents say offer a cheaper, faster and more secure way of doing business. Investors are clearly enthusiastic about the sector’s potential: Bitcoin- and blockchain-related startups attracted more than half a billion dollars in funding last year. In November, Blockstream took in $21 million from investors, including LinkedIn executive chairman Reid Hoffman.
Blockstream is looking to apply the technology to a range of activities, such as international money transfers. Typically, businesses are charged a 5% to 15% fee per transaction and have to wait three to five days for it to clear. With a blockchain, that could be reduced to less than a dollar and a 10-minute verification period—as long as it takes for the next block of transactions to be added on. Align Commerce, a San Francisco–based startup, is already facilitating business-to-business transactions across borders in local currencies using the bitcoin blockchain; Canadian companies can currently receive payments via the service but not send them.
Another sector ripe for blockchain disruption is data storage and verification. “Every business is basically a big stack of records,” says Peter Kirby, president of Factom, an Austin, Texas, company working in the blockchain space. “Every single one of those records is really only as good as how tamper-proof it is.” Factom creates secure data by affixing “digital fingerprints,” tokens that prove the existence of information without revealing the information itself, to the blockchain. Once added, they cannot be modified or deleted, ensuring a permanent record of a particular piece of information existing in a certain form at a certain time.
One client Factom is trying to land is the government of a Central American nation. “They built a giant database and digitized all the title records,” Kirby explains. “As soon as the bureaucrats had access to it, they started giving themselves beachfront property.” By adding all the title records to a blockchain, Factom could create a permanent record of every change made to each one—in effect, a searchable timeline of the document. Property owners could then prove the titles were in their own names—and not that of a corrupt bureaucrat—when first added to the database.
Building this kind of timeline would make compliance procedures and audits, such as when one company reviews another’s financials before purchasing it, faster and easier. With blockchain-based records, companies could easily establish the order of possession for any given document, preventing nasty surprises (such as fraudulent or accidental modification of records) that can accompany transactions.
Businesses will be wary of using a new technology over which they have no direct control. But some argue high-profile data breaches, like the those that occurred at Target and Home Depot, show that decentralized data is more secure. “We’re not relying on one database that’s holding millions of peoples’ information,” says Anthony Di Iorio, co-founder of Ethereum, which is also working on blockchain technology. “That’s just a disaster waiting to happen.”
As promising as these applications may appear, blockchain technology is still in its infancy. Hill paraphrases Bill Gates in describing the timeline for the development of blockchain: “In the short term, we tend to overestimate what something should do, but in the long term we dramatically underestimate how fast it will actually change.”
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