Blockchain technology will be just as revolutionary as the development of the internet has been. Established names in the financial world are having a hard time, but professions like notaries and lawyers and even innovative companies such as Uber and Airbnb are also standing on the precipice of substantial disruption.
Blockchain technology can be used to set up platforms that offer the ability to settle transactions without requiring a central party as manager. As an IT infrastructure, blockchain is interesting if you want to maintain a database of transactions with others whom you don’t necessarily know or trust. No one has to be appointed for management or security, because that is covered with cryptography and the IT architecture. The system keeps itself going, so no third entity is necessary.
That is precisely where the disruption for banking comes in. Their reason for existence is now largely the facilitation of transactions. This function will become superfluous with blockchain technology. The most famous application for blockchain – bitcoin – has already proven this. Participants in the bitcoin platform can transfer money to each other transparently and safely, without a bank’s intervention. All in all, we’re talking here about a crypto-exchange market of 10 billion dollars. What started as cyberpunk – a collaborative project from a bunch of IT-enthusiasts in their attic – has become a wake-up call for the financial sector.
"What started as cyberpunk – a collaborative project from a bunch of IT-enthusiasts in their attic – has become a wake-up call for the financial sector."
The developments seem to be going slowly, which results in financial institutions thinking they are safe. But as soon as blockchain technology catches on, it has the potential to cause banks to fail if they haven’t done anything with the technology. It is not for nothing that all large banks worldwide are busy experimenting with blockchain technology. Because of this technology, they will have to drastically adjust their business model. We think that the bank is more likely to act as an advisor than to have a central role in our future financial system.
But, as already mentioned, banks are not the only organisations that directly experience blockchain developments. Ethereum is a project of which we have high expectations. This centralised platform enables the conclusion of contracts and agreements worldwide based on blockchain technology. One simple example: you can agree with someone that money transferred to your bank account is only released after seven days. Or with a shared account among three partners, the rule applies than money is only transferred if two partners agree. No notary is needed; the rules are recorded in a ‘smart contract’.
Legal language will thus be replaced by programming language. Mathematicians and IT-enthusiasts, instead of notaries, will set up contracts. This is not without risk, because if the agreement is not set up well, nothing more can be done about it. But the advantage is that you are guaranteed the contract will be interpreted in the same manner worldwide; it is clear and transparent and fraud-proof.
The smart contracts that are now concluded relate mainly to money but naturally many more applications are possible. For example, Havenbedrijf Rotterdam (a harbour company in Rotterdam) is busy with consignment notes. Currently, each country places different requirements on them. With smart contracts, you can very easily standardise the customs process. Or what about trade agreements? With a blockchain platform, bilateral agreements are no longer needed. The Kadaster (Dutch land registry), KvK (Dutch chamber of commerce) – they will all become redundant. After all, you can apply blockchain technology to everything that uses a database.
We also expect much from the link between blockchain and the Internet of Things. Just look at Airbnb, for example, which mediates between a home owner and a holidaymaker. The great advantage of Airbnb is that it facilitates the payment – the lessor knows that the money has been received by Airbnb before the guest arrives, and receives it 24 hours after ‘check in’. That process can very easily be replaced by blockchain technology and even made smarter. A lessor with ‘smart’ locks could then set up a system where if the signal is given that the cleaning has been completed and the money has been transferred, then the guests can open the lock. So you no longer need Airbnb for the settlement of the transaction. The same application can be devised for Uber taxis: if the money has been received then the self-driving car drives, and when the trip is done, that paid amount is released. In short, the current disrupters are certainly not immune to the blockchain revolution.
We are convinced that within one year, blockchain technology will form the backbone of all possible transactions. The big question is whether and how existing companies will bridge the gap between the technology and the real world. Waiting means wasting time.