If you’ve ever bought a house, you probably had to sign a huge stack of papers from a variety of different stakeholders to make that transaction happen. It is a complex transaction involving banks, attorneys, title companies, insurers, regulators, tax agencies and inspectors. They all maintain separate records, and it’s costly to verify and record each step. That’s why the average closing takes several days. Same holds good if you are registering a vehicle. In these two examples, what you are doing is ‘Establishing ownership of the asset’ and the problem is that there are several ledgers (or databases) where the information resides and all of them have to have the same version of truth. So the problem are many fold:
- Multiple ledger(s) which are updated to represent business transactions as they occur.
- This is EXPENSIVE due to duplication of effort and intermediaries adding margin for services.
- It is clearly INEFFICIENT, as the business conditions – the contract – is duplicated by every network participant and we need to rely on intermediaries through this paper laden process.
- It is also VULNERABLE because if a central system (e.g. Bank) is compromised due to an incidents this affects the whole business network. Incidents can include fraud, cyber attack or a simple mistake.
- Industries are merging and interacting like never before. The growth of ecommerce, online banking, and in-app purchases, and the increasing mobility of people around the world have fueled the growth of transaction volumes. And transaction volumes will explode with the rise of Internet of Things (IoT) — autonomous objects, such as refrigerators that buy groceries when supplies are running low and cars that deliver themselves to your door, stopping for fuel along the way. These partnerships require more trust and transparency to succeed.
- There is increasing regulation, cybercrime and fraud that is inhibiting business growth. The last 10 years have seen the growth of global, cross-industry regulations, including HIPA, Sarbanes -Oxley Act, anti-money laundering and more. And to keep pace with regulatory changes, companies are rapidly increasing compliance staff and budgets.
- Advancement in technologies like cloud (offering compute power to track billions of transactions) and cryptography (securing both networks and transactions) are also enablers for blockchain.
In my future blog I will discuss how blockchain makes things better and how it works. So stay tuned.