Blockchain Benefits & Recent Trends
Blockchain is a distributed ledger where each constituent node holds entire data, trail of transactions and also executes transactions. All nodes stay in sync thru consensus. Both the data and programs (aka Smart Contracts) on blockchain are immutable and tamper proof. This immutability along with transparency makes software implementations on blockchain (aka Decentralized applications or Dapps) a well trusted intermediary among business transaction
participants. This eliminates need for a trusted 3rd party escrow for transactions between participants without mutual trust in turn reducing operational costs and turnaround times significantly. Per Gartner, the business value-add of blockchain will grow to over USD176 billion by 2025, and will exceed USD3.1 trillion by 2030
Though the first application of blockchain was for money transfer (bitcoin), there is lot of scope for non-currency applications. In banking industry, blockchain has use cases like data tampering prevention, ‘Know your Customer’(KYC) sharing, securities trading, payments processing. Use cases of Subrogation, Provenance, Claims’ management exist for insurance industry. Following industries also have use cases for blockchain: Supply Chain, retail, healthcare, telecom, manufacturing, logistics, government. Per Gartner’s study BFSI sector is dominating the blockchain market with more than 60% revenue share in 2017.
Idea of blockchain was published in 2008 and Bitcoin started in 2009. Refinements followed but major breakthrough of Smart contracts occurred around 2014 with Ethereum project. This facilitated Dapps. Gradually other platforms like Hypderledger fabric, Hyperlegder Sawtooth, R3 Corda, Ripple, Quorum, EOS came up.
Initial public blockchain platforms like Bitcoin, Ethereum do have some technical limitations: Throughput of Bitcoin and Ethereum are within 9 and 25 transactions per second(tps) respectively; which are grossly insufficient for enterprise grade applications. Search (query) based on functional field values is a problem due to limited/no indexing support. Several security vulnerabilities were uncovered on the Ethereum public blockchain. Anonymity provided by these blockchains made them a haven for malicious people transferring money for illegal activities. Bitcoin became infa-mous for this.
Per analyst firm ‘Market Reports Center’ (MRC), after first 8 years, blockchain’s global market in 2017 is only around USD708 million which is low in this age of internet and open-source software. Technical limitations discussed above and blockchain technology being in the shadow of Bitcoin for a while are some of the causes.
Major corporates have formed consortiums to explore blockchain usage in their business. In 2015, BFSI companies Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland, State Street, and UBS formed a consortium. In 2017 pharma companies
Genentech (Roche Group), Pfizer, AmerisourceBergen, and McKesson Corporation formed working group for ‘Mediledger’ project. In India, State Bank of India, ICICI Bank, DCB Bank, Kotak Mahindra Bank, Federal Bank, Deutsche Bank and UAE Exchange are members of ‘Bankchain’ formed in 2017.
Among blockchain solutions vendors, startups dominate so far with more than 60% market share in 2017 per analyst firm ‘Global Market Insights’. However, MNC giants like IBM, Microsoft, Hewlett Packard Enterprise, SAP, Amazon Web Services also had entered the blockchain space. Mergers and acquisitions are likely going forward.
Above mentioned participation of large vendor and
consumer Organizations and technological improvements to the platform by vendors, make future very promising. Per analyst firm ‘Report Buyer’, during 2017-22 blockchain market sees a Compound Annual Growth Rate (CAGR) around 79.6% and will grow to USD7.6billion by 2022. MRC forecasts blockchain market to reach 60.7 billion by 2024. Analyst firm ‘Grand View Research’ expects a CAGR around 37.2% during 2015-24 taking the blockchain market to USD7.59 billion by 2024.
Lack of clarity on regulations has been hindering blockchain adoption. Always Innovation and result-ing disruption precede regulation (changes). Blockchain is at that stage of regulation catching up. Governments across the world framing their blockchain policies.
Indian central and state governments encourage blockchain technology. Indian Prime minister’s tweet on 19Feb18 about blockchain and State of Andhra Pradesh going live with blockchain storage for land registry of its capital region are some examples.
- Phani Arega,
Senior Vice President,
Engineering, Zebi Data India