Living in a world of Blockchain

Historically, when it comes to transacting money or anything of value, people and businesses have relied heavily on intermediaries like banks and governments to ensure trust and certainty. Middlemen perform a range of important tasks that help build trust into the transactional process like authentication & record keeping.

The need for intermediaries is especially acute when making a digital transaction. Because digital assets like money, stocks & intellectual property, are essentially files, they are incredibly easy to reproduce. This creates what’s known as the double spending problem (the act of spending the same unit of value more than once) which until now has prevented the peer to peer transfer of digital assets.

But what if there was a way of conducting digital transactions without a third party intermediary? Well, a new technology exists today that makes this possible.

Living with blockchain

Blockchain technology is complex, but the idea is simple. At its most basic, blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value – money, titles, deeds, music, art, scientific discoveries, intellectual property, and even votes – can be moved and stored securely and privately. On the blockchain, trust is established, not by powerful intermediaries like banks, governments and technology companies, but through mass collaboration and digital code. Blockchains ensure integrity and trust between strangers. And the ledger itself can also be programmed to trigger transactions automatically.

With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organisations, machines, and algorithms would freely transact and interact with one another with little friction. 

Blockchain technology can also take networked business models to a new level by supporting a whole host of breakthrough applications: native payment systems that run without banks, credit card companies, and other intermediaries will cut cost and time from transactions. For example, a global searchable database of all transactions could dramatically lower the costs of search. Smart contracts (software programs that self-execute complex instructions) on blockchains will plummet the costs of contracting, enforcing contracts, and making payments. Autonomous agents (bundles of smart contracts acting like rich applications) on the blockchain hold the promise of eliminating agency and coordinating costs, and can perhaps even lead to highly distributed enterprises with little or no management. Reputation systems built on social and economic capital and controlled by individuals, rather than by intermediaries like rating agencies and credit rating services, will change the dynamic between consumers and companies. Trust-less transactions, where two or more people need not know nor trust each other to do business, will be feasible. There are staggering implications beyond financial services.

Consider the music industry, where intermediaries capture nearly all the value and artists get paid last. Now, companies like Mycelia, founded by Grammy-winning artist Imogen Heap, have developed intelligent songs with smart contracts built in, which enable artists to sell directly to consumers without going through a label, financial intermediary, or technology company. This means that royalties and licensing agreements execute automatically and instantly—and artists get paid first. Spotify, Apple, Sony Music and other massive media companies stand to lose or gain depending on how quickly they embrace this technology.

Imagine the digital registry of artwork, including the certificates of authenticity, condition, and ownership. A new startup, Ascribe, which runs on the blockchain, lets artists themselves upload digital art, watermark it as the definitive version, and transfer it, so similar to bitcoin, it moves from one person’s collection to another’s. The technology solves the intellectual property world’s equivalent of the double-spend problem better than existing digital rights management systems; and artists could decide whether, when, and where they wanted to deploy it.

Most so-called sharing economy companies are really service aggregators. They aggregate the willingness of suppliers to sell their excess capacity (cars, equipment, vacant rooms, handyman skills) through a centralised platform and then resell them to users, all while collecting a cut off the top and valuable data for further commercial exploitation. Blockchain technology can provide the suppliers of these services a means to collaborate that delivers a greater share of the value to them. Just about everything Uber does could be done by smart agents on a blockchain. The blockchain’s trust protocol allows for cooperatives, or autonomous associations, to be formed and controlled by people who come together to meet common needs. All revenues for services, except for overhead, would go to members, who also control the platform and make decisions.

3D printing is proving to be another revolutionary technology that is moving manufacturing closer to users and bringing new life to mass customisation. But today, makers still need centralised platforms to sell their wares and have trouble protecting the intellectual property of their creations. With blockchain, data and rights holders could store metadata about any substance, from human cells to powered aluminium, on the blockchain, in turn opening up the limits of corporate manufacturing while also protecting intellectual property. New markets could enable buyers and sellers to contract more easily in an open market.

It’s not surprising that some of the closer-to-market applications of the technology are in the financial sector. While trading and speculation were early use cases of bitcoin, new technologies, such as Ethereum and Zcash, have emerged, with Zcash providing a higher degree of privacy than bitcoin, and Ethereum offering a powerful development platform for smart contracts and decentralised applications, with the power to transform everything from predictive applications to job and energy markets to hedge funds and decentralised cloud services. As the entire cryptocurrency ecosystem matures, digital wallet providers and exchanges are becoming more professional and secure.

On the consumer side, companies such as Circle and Abra are taking advantage of the lower costs offered by blockchain technology for cross-border payments, encroaching in the territory of players like Venmo (now part of PayPal), TransferWise, and traditional remittances providers. Visa and MasterCard are both exploring uses for similar technology to improve the way they process payments, while Ripple is lowering the cost of transactions between banks and other financial institutions through its global settlement network. In all of these cases, blockchain technology is adopted “under the hood,” and consumers and businesses can reap the benefits without ever knowing that a distributed ledger was ever involved.

The same applies to trade finance and financial assets, where companies such as Digital Asset Holdings (run by JPMorgan veteran Blythe Masters), Blockstream, and Chain are trying to revolutionise how assets are issued and traded. Their solutions at this stage focus more on distributed ledger technology as a way to lower costs and improve efficiency than on bootstrapping entirely new ecosystems on top of cryptocurrency. This has the advantage of allowing them to design solutions that are compliant with existing financial regulations, which has attracted the attention of major stock exchanges and established players like NASDAQ.

In the next extensive example let's explore, how blockchain could transform Health Records.

The Potential for Blockchain to Transform Electronic Health Records

A vexing problem facing health care systems throughout the world is how to share more medical data with more stakeholders for more purposes, all while ensuring data integrity and protecting patient privacy.

Traditionally, the interoperability of medical data among institutions has followed three models: push, pull, and view (discussed below), each of which has its strengths and weaknesses. Blockchain offers a fourth model, which has the potential to enable secure lifetime medical record sharing across providers.

Push is a transmission between two parties, and no other party has access to the transaction. If you end up being transferred to another hospital, the new hospital may not be able to access data about your care that was pushed to the first hospital. There is no guarantee of data integrity from the point of data generation to the point of data use — it is assumed that the sending system generated an accurate payload and the receiving system ingested the payload accurately — with no standardised audit trail.

Pull is the idea that one provider can query information from another provider. For example, your cardiologist could query information from your primary care doctor. As with push, all consent and permissioning is informal, ad hoc, and done without a standardised audit trail.

View is the idea that one provider can view the data inside another provider’s record. For example, a surgeon in the hospital operating room could view an X-ray you had taken at an urgent care centre. Security approaches are ad hoc, not audited in a standardised way, and not necessarily based on an existing patient-provider relationship.

All of these approaches work technologically, but the policies surrounding them are subject to institutional variation, local practice, state laws, and the rigour of national privacy policy enforcement.

Blockchain is a different construct, providing a universal set of tools for cryptographic assurance of data integrity, standardised auditing, and formalised “contracts” for data access. Here’s the idea:

Blockchain was originally conceived of as a ledger for financial transactions. Every financial institution creates a cryptographically secured list of all deposits and withdrawals. Blockchain uses public key cryptographic techniques to create an append-only, immutable, time-stamped chain of content. Copies of the blockchain are distributed on each participating node in the network.

Today humans manually attempt to reconcile medical data among clinics, hospitals, labs, pharmacies, and insurance companies. It does not work well because there is no single list of all the places data can be found or the order in which it was entered. We may know every medication ever prescribed, but it can be unclear which medications the patient is actually taking now. Further, although data standards are better than ever, each electronic health record (EHR) stores data using different workflows, so it is not obvious who recorded what, and when.

Imagine that every EHR sent updates about medications, problems, and allergy lists to an open-source, community-wide trusted ledger, so additions and subtractions to the medical record were well understood and auditable across organisations. Instead of just displaying data from a single database, the EHR could display data from every database referenced in the ledger. The end result would be perfectly reconciled community-wide information about you, with guaranteed integrity from the point of data generation to the point of use, without manual human intervention.

MedRec (decentralised record management system to handle EHRs using blockchain technology) doesn’t store health records or require a change in practice. It stores a signature of the record on a blockchain and notifies the patient, who is ultimately in control of where that record can travel. The signature assures that an unaltered copy of the record is obtained. It also shifts the locus of control from the institution to the patient, and in return both burdens and enables the patient to take charge of management. For those patients who do not want to manage their data, I imagine that service organisations will evolve to serve as patient delegates for this task. One challenge of the project and the idea is building an interface that can make this responsibility palatable for patients. Most of the individual patient portals that people use today have cumbersome designs, create more work, and have different user interfaces at every institution.

The rationale for considering a blockchain in electronic health care records is twofold. First, it avoids adding another organisation between the patient and the records. It is not a new clearing house or “safe deposit box” for data. The blockchain implies a decentralised control mechanism in which all have an interest, but no one exclusively owns it. This is an architectural change that generalises past medical records. Second, it adds due consideration to a time-stamped, programmable ledger. That opens the door for intelligent control of record access without having to create custom functionality for each EHR vendor. The ledger also inherently includes an audit trail.

Blockchain for health care is very early in its lifecycle, but it has the potential to standardise secure data exchange in a less burdensome way than previous approaches.

How Blockchain Works

Here are five basic principles underlying the technology.

1. Distributed Database

Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary.

2. Peer-to-Peer Transmission

Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes.

3. Transparency with Pseudonymity

Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.

4. Irreversibility of Records

Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term “chain”). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network.

5. Computational Logic

The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.

So, Blockchain is a type of distributed ledger or decentralised database that keeps records of digital transactions. Rather than having a central administrator like a traditional database, (think banks, governments & accountants), a distributed ledger has a network of replicated databases, synchronised via the internet and visible to anyone within the network. Blockchain networks can be private with restricted membership similar to an intranet, or public, like the Internet, accessible to any person in the world.

When a digital transaction is carried out, it is grouped together in a cryptographically protected block with other transactions that have occurred in the last 10 minutes and sent out to the entire network. Miners (members in the network with high levels of computing power) then compete to validate the transactions by solving complex coded problems. The first miner to solve the problems and validate the block receives a reward. (In the Bitcoin Blockchain network, for example, a miner would receive Bitcoins).

The validated block of transactions is then timestamped and added to a chain in a linear, chronological order. New blocks of validated transactions are linked to older blocks, making a chain of blocks that show every transaction made in the history of that blockchain. The entire chain is continually updated so that every ledger in the network is the same, giving each member the ability to prove who owns what at any given time.

Blockchain’s decentralised, open & cryptographic nature allow people to trust each other and transact peer to peer, making the need for intermediaries obsolete. This also brings unprecedented security benefits. Hacking attacks that commonly impact large centralised intermediaries like banks would be virtually impossible to pull off on the blockchain. For example — if someone wanted to hack into a particular block in a blockchain, a hacker would not only need to hack into that specific block, but all of the proceeding blocks going back the entire history of that blockchain. And they would need to do it on every ledger in the network, which could be millions, simultaneously. 

A Brief History of Blockchain

Many of the technologies we now take for granted were quiet revolutions in their time. We’re now in the midst of another quiet revolution: blockchain, a distributed database that maintains a continuously growing list of ordered records, called “blocks.”

Consider what’s happened in just the past 10 years:

? The first major blockchain innovation was bitcoin, a digital currency experiment. The market cap of bitcoin now hovers between $10–$20 billion dollars, and is used by millions of people for payments, including a large and growing remittances market.

? The second innovation was called blockchain, which was essentially the realisation that the underlying technology that operated bitcoin could be separated from the currency and used for all kinds of other inter-organisational cooperation. Almost every major financial institution in the world is doing blockchain research at the moment, and 15% of banks are expected to be using blockchain in 2017.

? The third innovation was called the “smart contract,” embodied in a second-generation blockchain system called Ethereum, which built little computer programs directly into blockchain that allowed financial instruments, like loans or bonds, to be represented, rather than only the cash-like tokens of the bitcoin. The Ethereum smart contract platform now has a market cap of around a billion dollars, with hundreds of projects headed toward the market.

? The fourth major innovation, the current cutting edge of blockchain thinking, is called “proof of stake.” Current generation blockchains are secured by “proof of work,” in which the group with the largest total computing power makes the decisions. These groups are called “miners” and operate vast data centres to provide this security, in exchange for cryptocurrency payments. The new systems do away with these data centres, replacing them with complex financial instruments, for a similar or even higher degree of security. Proof-of-work systems are expected to go live later this year.

? The fifth major innovation on the horizon is called blockchain scaling. Right now, in the blockchain world, every computer in the network processes every transaction. This is slow. A scaled blockchain accelerates the process, without sacrificing security, by figuring out how many computers are necessary to validate each transaction and dividing up the work efficiently. To manage this without compromising the legendary security and robustness of blockchain is a difficult problem, but not an intractable one. A scaled blockchain is expected to be fast enough to power the internet of things and go head-to-head with the major payment middlemen (VISA and SWIFT) of the banking world.

This innovation landscape represents just 10 years of work by an elite group of computer scientists, cryptographers, and mathematicians.

The sense of scale inside the blockchain industry is that the changes coming will be “as large as the original invention of the internet,” and this may not be overstated. What we can predict is that as blockchain matures and more people catch on to this new mode of collaboration, it will extend into everything from supply chains to provably fair internet dating (eliminating the possibility of fake profiles and other underhanded techniques). And given how far blockchain come in 10 years, perhaps the future could indeed arrive sooner than any of us think.

Patterns of Technology Adoption

Let’s reflect on what we know about technology adoption and, in particular, the transformation process typical of other foundational technologies. One of the most relevant examples is distributed computer networking technology, seen in the adoption of TCP/IP (transmission control protocol/internet protocol), which laid the groundwork for the development of the internet.

Introduced in 1972, TCP/IP first gained traction in a single-use case: as the basis for e-mail among the researchers on ARPAnet, the U.S. Department of Defence precursor to the commercial internet. Before TCP/IP, telecommunications architecture was based on “circuit switching,” in which connections between two parties or machines had to be pre-established and sustained throughout an exchange. To ensure that any two nodes could communicate, telecom service providers and equipment manufacturers had invested billions in building dedicated lines.

TCP/IP turned that model on its head. The new protocol transmitted information by digitising it and breaking it up into very small packets, each including address information. Once released into the network, the packets could take any route to the recipient. Smart sending and receiving nodes at the network’s edges could disassemble and reassemble the packets and interpret the encoded data. There was no need for dedicated private lines or massive infrastructure. TCP/IP created an open, shared public network without any central authority or party responsible for its maintenance and improvement.

Traditional telecommunications and computing sectors looked on TCP/IP with skepticism. Few imagined that robust data, messaging, voice, and video connections could be established on the new architecture or that the associated system could be secure and scale up. But during the late 1980s and 1990s, a growing number of firms, such as Sun, NeXT, Hewlett-Packard, and Silicon Graphics, used TCP/IP, in part to create localised private networks within organisations. To do so, they developed building blocks and tools that broadened its use beyond e-mail, gradually replacing more-traditional local network technologies and standards. As organisations adopted these building blocks and tools, they saw dramatic gains in productivity.

TCP/IP burst into broad public use with the advent of the World Wide Web in the mid-1990s. New technology companies quickly emerged to provide the “plumbing”—the hardware, software, and services needed to connect to the now-public network and exchange information. Netscape commercialised browsers, web servers, and other tools and components that aided the development and adoption of internet services and applications. Sun drove the development of Java, the application-programming language. As information on the web grew exponentially, Infoseek, Excite, AltaVista, and Yahoo were born to guide users around it.

Once this basic infrastructure gained critical mass, a new generation of companies took advantage of low-cost connectivity by creating internet services that were compelling substitutes for existing businesses. CNET moved news online. Amazon offered more books for sale than any bookshop. Priceline and Expedia made it easier to buy airline tickets and brought unprecedented transparency to the process. The ability of these newcomers to get extensive reach at relatively low cost put significant pressure on traditional businesses like newspapers and brick-and-mortar retailers.

Relying on broad internet connectivity, the next wave of companies created novel, transformative applications that fundamentally changed the way businesses created and captured value. These companies were built on a new peer-to-peer architecture and generated value by coordinating distributed networks of users. Think of how eBay changed online retail through auctions, Napster changed the music industry, Skype changed telecommunications, and Google, which exploited user-generated links to provide more relevant results, changed web search.

Ultimately, it took more than 30 years for TCP/IP to move through all the phases—single use, localised use, substitution, and transformation (described in detail below)—and reshape the economy. Today more than half the world’s most valuable public companies have internet-driven, platform-based business models. The very foundations of our economy have changed. Physical scale and unique intellectual property no longer confer unbeatable advantages; increasingly, the economic leaders are enterprises that act as “keystones,” proactively organising, influencing, and coordinating widespread networks of communities, users, and organisations.

Blockchain—a peer-to-peer network that sits on top of the internet—was introduced in October 2008 as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology.

The parallels between blockchain and TCP/IP are clear. Just as e-mail enabled bilateral messaging, bitcoin enables bilateral financial transactions. The development and maintenance of blockchain is open, distributed, and shared—just like TCP/IP’s. A team of volunteers around the world maintains the core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small community.

TCP/IP unlocked new economic value by dramatically lowering the cost of connections. Similarly, blockchain could dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge.

Consider how business works now. Keeping ongoing records of transactions is a core function of any business. Those records track past actions and performance and guide planning for the future. They provide a view not only of how the organisation works internally but also of the organisation’s outside relationships. Every organisation keeps its own records, and they’re private. Many organisations have no master ledger of all their activities; instead records are distributed across internal units and functions. The problem is, reconciling transactions across individual and private ledgers takes a lot of time and is prone to error.

For example, a typical stock transaction can be executed within microseconds, often without human intervention. However, the settlement—the ownership transfer of the stock—can take as long as a week. That’s because the parties have no access to each other’s ledgers and can’t automatically verify that the assets are in fact owned and can be transferred. Instead a series of intermediaries act as guarantors of assets as the record of the transaction traverses organisations and the ledgers are individually updated.

In a blockchain system, the ledger is replicated in a large number of identical databases, each hosted and maintained by an interested party. When changes are entered in one copy, all the other copies are simultaneously updated. So as transactions occur, records of the value and assets exchanged are permanently entered in all ledgers. There is no need for third-party intermediaries to verify or transfer ownership. If a stock transaction took place on a blockchain-based system, it would be settled within seconds, securely and verifiably. (The infamous hacks that have hit bitcoin exchanges exposed weaknesses not in the blockchain itself but in separate systems linked to parties using the blockchain.)

If bitcoin is like early e-mail, is blockchain decades from reaching its full potential? The answer is a yes. We can’t predict exactly how many years the transformation will take, but we can guess which kinds of applications will gain traction first and how blockchain’s broad acceptance will eventually come about.

The adoption of foundational technologies typically happens in four phases. Each phase is defined by the novelty of the applications and the complexity of the coordination efforts needed to make them workable. Applications low in novelty and complexity gain acceptance first. Applications high in novelty and complexity take decades to evolve but can transform the economy. TCP/IP technology, introduced on ARPAnet in 1972, has already reached the transformation phase, but blockchain applications are in their early days.

History suggests that two dimensions affect how a foundational technology and its business use cases evolve. The first is novelty—the degree to which an application is new to the world. The more novel it is, the more effort will be required to ensure that users understand what problems it solves. The second dimension is complexity, represented by the level of ecosystem coordination involved—the number and diversity of parties that need to work together to produce value with the technology. For example, a social network with just one member is of little use; a social network is worthwhile only when many of your own connections have signed on to it. Other users of the application must be brought on board to generate value for all participants. The same will be true for many blockchain applications. And, as the scale and impact of those applications increase, their adoption will require significant institutional change. 

We’ve developed a framework that maps innovations against these two contextual dimensions, dividing them into quadrants. Each quadrant represents a stage of technology development. Identifying which one a blockchain innovation falls into will help executives understand the types of challenges it presents, the level of collaboration and consensus it needs, and the legislative and regulatory efforts it will require. The map will also suggest what kind of processes and infrastructure must be established to facilitate the innovation’s adoption. Managers can use it to assess the state of blockchain development in any industry, as well as to evaluate strategic investments in their own blockchain capabilities.

Single use.

In the first quadrant are low-novelty and low-coordination applications that create better, less costly, highly focused solutions. E-mail, a cheap alternative to phone calls, faxes, and snail mail, was a single-use application for TCP/IP (even though its value rose with the number of users). Bitcoin, too, falls into this quadrant. Even in its early days, bitcoin offered immediate value to the few people who used it simply as an alternative payment method. (You can think of it as a complex e-mail that transfers not just information but also actual value.) At the end of 2016 the value of bitcoin transactions was expected to hit $92 billion. That’s still a rounding error compared with the $411 trillion in total global payments, but bitcoin is growing fast and increasingly important in contexts such as instant payments and foreign currency and asset trading, where the present financial system has limitations.

Localisation.

The second quadrant comprises innovations that are relatively high in novelty but need only a limited number of users to create immediate value, so it’s still relatively easy to promote their adoption. If blockchain follows the path network technologies took in business, we can expect blockchain innovations to build on single-use applications to create local private networks on which multiple organisations are connected through a distributed ledger.

Much of the initial private blockchain-based development is taking place in the financial services sector, often within small networks of firms, so the coordination requirements are relatively modest. Nasdaq is working with Chain.com, one of many blockchain infrastructure providers, to offer technology for processing and validating financial transactions. Bank of America, JPMorgan, the New York Stock Exchange, Fidelity Investments, and Standard Chartered are testing blockchain technology as a replacement for paper-based and manual transaction processing in such areas as trade finance, foreign exchange, cross-border settlement, and securities settlement. The Bank of Canada is testing a digital currency called CAD-coin for interbank transfers. We anticipate a proliferation of private blockchains that serve specific purposes for various industries.

Substitution.

The third quadrant contains applications that are relatively low in novelty because they build on existing single-use and localised applications, but are high in coordination needs because they involve broader and increasingly public uses. These innovations aim to replace entire ways of doing business. They face high barriers to adoption, however; not only do they require more coordination but the processes they hope to replace may be full-blown and deeply embedded within organisations and institutions. Examples of substitutes include cryptocurrencies—new, fully formed currency systems that have grown out of the simple bitcoin payment technology. The critical difference is that a cryptocurrency requires every party that does monetary transactions to adopt it, challenging governments and institutions that have long handled and overseen such transactions. Consumers also have to change their behaviour and understand how to implement the new functional capability of the cryptocurrency.

A recent experiment at MIT highlights the challenges ahead for digital currency systems. In 2014 the MIT Bitcoin Club provided each of MIT’s 4,494 undergraduates with $100 in bitcoin. Interestingly, 30% of the students did not even sign up for the free money, and 20% of the sign-ups converted the bitcoin to cash within a few weeks. Even the technically savvy had a tough time understanding how or where to use bitcoin.

One of the most ambitious substitute blockchain applications is Stellar, a nonprofit that aims to bring affordable financial services, including banking, micropayments, and remittances, to people who’ve never had access to them. Stellar offers its own virtual currency, lumens, and also allows users to retain on its system a range of assets, including other currencies, telephone minutes, and data credits. Stellar initially focused on Africa, particularly Nigeria, the largest economy there. It has seen significant adoption among its target population and proved its cost-effectiveness. But its future is by no means certain, because the ecosystem coordination challenges are high. Although grassroots adoption has demonstrated the viability of Stellar, to become a banking standard, it will need to influence government policy and persuade central banks and large organisations to use it. That could take years of concerted effort.

Transformation.

Into the last quadrant fall completely novel applications that, if successful, could change the very nature of economic, social, and political systems. They involve coordinating the activity of many actors and gaining institutional agreement on standards and processes. Their adoption will require major social, legal, and political change.

“Smart contracts” may be the most transformative blockchain application at the moment. These automate payments and the transfer of currency or other assets as negotiated conditions are met. For example, a smart contract might send a payment to a supplier as soon as a shipment is delivered. A firm could signal via blockchain that a particular good has been received—or the product could have GPS functionality, which would automatically log a location update that, in turn, triggered a payment. We’ve already seen a few early experiments with such self-executing contracts in the areas of venture funding, banking, and digital rights management.

The implications are fascinating. Firms are built on contracts, from incorporation to buyer-supplier relationships to employee relations. If contracts are automated, then what will happen to traditional firm structures, processes, and intermediaries like lawyers and accountants? And what about managers? Their roles would all radically change. Before we get too excited here, though, let’s remember that we are decades away from the widespread adoption of smart contracts. They cannot be effective, for instance, without institutional buy-in. A tremendous degree of coordination and clarity on how smart contracts are designed, verified, implemented, and enforced will be required. We believe the institutions responsible for those daunting tasks will take a long time to evolve. And the technology challenges—especially security—are daunting.

Ethereum - build unstoppable applications

Ethereum is a decentralised platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.

These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counter-party risk.

The project was bootstrapped via an ether pre-sale during August 2014 by fans all around the world. It is developed by the Ethereum Foundation, a Swiss nonprofit, with contributions from great minds across the globe.

On traditional server architectures, every application has to set up its own servers that run their own code in isolated silos, making sharing of data hard. If a single app is compromised or goes offline, many users and other apps are affected.On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to reach an agreement and be compensated by users and app developers. This allows user data to remain private and apps to be decentralised like the Internet was supposed to work.

With ETHEREUM YOU CAN:

DESIGN AND ISSUE YOUR OWN CRYPTOCURRENCY

Create a tradeable digital token that can be used as a currency, a representation of an asset, a virtual share, a proof of membership or anything at all. These tokens use a standard coin API, so your contract will be automatically compatible with any wallet, other contract or exchange also using this standard.

The total amount of tokens in circulation can be set to a simple fixed amount or fluctuate based on any programmed ruleset.

YOU CAN BUILD:

• A tradeable token with a fixed supply
• A central bank that can issue money
• A puzzle-based cryptocurrency

KICKSTART A PROJECT WITH A TRUST-LESS CROWDSALE

Using Ethereum, you can create a contract that will hold a contributor's money until any given date or goal is reached. Depending on the outcome, the funds will either be released to the project owners or safely returned back to the contributors. All of this is possible without requiring a centralised arbitrator, clearing house or having to trust anyone.

You can even use the token you created earlier to keep track of the distribution of rewards.

YOU CAN BUILD:

• A crowdfund to pre-sell a product
• A crowdsale to sell virtual shares in a blockchain organisation
• An auction of a limited number of items

CREATE A DEMOCRATIC AUTONOMOUS ORGANISATION

Now that you have developed your idea and secured funds, what’s next? You have to hire managers, find a trustworthy CFO to handle the accounts, run board meetings and do a bunch of paperwork. Or you can simply leave all that to an Ethereum contract. It will collect proposals from your backers and submit them through a completely transparent voting process.

One of the many advantages of having a robot run your organisation is that it is immune to any outside influence as it’s guaranteed to execute only what it was programmed to. And because the Ethereum network is decentralised, you'll be able to provide services with a 100% uptime guarantee.

YOU CAN BUILD:

• A virtual organisation where members vote on issues
• A transparent association based on shareholder voting
• Your own country with an unchangeable constitution
• A better delegative democracy

Conclusion

True blockchain-led transformation of business and government is still many years away. That’s because blockchain is not a “disruptive” technology, which can attack a traditional business model with a lower-cost solution and overtake incumbent firms quickly. Blockchain is a foundational technology: It has the potential to create new foundations for our economic and social systems. But while the impact will be enormous, it will take decades for blockchain to seep into our economic and social infrastructure. The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum.

But given the time horizons, barriers to adoption, executives should think carefully about the risks involved in experimenting with blockchain. Clearly, starting small is a good way to develop the know-how to think bigger. But the level of investment should depend on the context of the company and the industry. Financial services companies are already well down the road to blockchain adoption. Manufacturing is not.

No matter what the context, there’s a strong possibility that blockchain will affect all businesses. The very big question is when.

References

https://www.ethereum.org

https://dapps.ethercasts.com

https://hbr.org/2017/02/a-brief-history-of-blockchain

https://hbr.org/2017/03/the-potential-for-blockchain-to-transform-electronic-health-records

https://hbr.org/2017/03/how-blockchain-applications-will-move-beyond-finance

https://medium.com/the-intrepid-review/how-does-the-blockchain-work-for-dummies-explained-simply-9f94d386e093#.bi05yqapq

https://hbr.org/2017/01/the-truth-about-blockchain