Tech & Science

Bitcoin Goes Corporate, or at Least the Blockchain Does

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A bitcoin (virtual currency) paper wallet with quick response codes and a coin are seen in an illustration picture taken at La Maison du Bitcoin in Paris on May 27, 2015. Benoit Tessier/Reuters

“The back office in financial services is finally sexy again,” says Jim Zemlin, the executive director of the Linux Foundation.

It’s not often you hear “back office” and “sexy” in the same sentence, and it may never happen again. But the changes coming to how corporations move stocks and deeds, as well as manage digital rights, could amount to a revolution that could rid the world once and for all of the bibles of paperwork created by things like real estate transactions. All this is happening thanks to a technological outgrowth of the digital currency bitcoin called the blockchain.  

Bitcoin was supposed to change money. That still may be in the offing, but as the currency ages, it seems less and less likely that we will ever all be paid in satoshis, the name for 1/100,000,000 of a bitcoin. But there’s one part of the bitcoin story that has the chance to impact nearly everyone: the blockchain, the technical leap that underpins the anonymous, distributed currency.

As described in the first paper on bitcoin, the digital currency relies on “cryptographic proof instead of trust.” That means the currency’s network itself checks for tampering and fraud instead of relying on an institution like a bank. Bitcoin works on anonymity, but a key part of the system is a public ledger of transactions, shared across thousands of computers—the blockchain. When a bitcoin changes ownership, the transaction is recorded in the blockchain after the computers on the network “agree” to the change. That means the same bitcoin can’t be spent twice by the same owner while the system is waiting to record the transaction.

But for business, there are lots of potential applications of the blockchain that are simpler and largely without the anonymity that bitcoin supports. “While blockchain grew out of bitcoin, we believe it goes way beyond cryptocurrency. It can be generously applied to many industries,” says Jerry Cuomo, vice president of blockchain technology at IBM.

At IBM, Cuomo spent his career developing web-based transaction processing. When bitcoin arrived in 2009, “I was not a miner”—the network participants who contributed to the system with processing power and are paid in new coins—“but I started to recognize blockchain might be something that could be applied broadly," Cuomo says. "Maybe this thing could go off and solve a broad range of problems for companies and governments.” Employees at IBM started doing experiments in their free time and eventually got the company to see the enormous potential of the blockchain.

It could be possible, for instance, for voting to become fraud-free, verifiable and nearly instant using a blockchain. A blockchain could also move money from your bank account more quickly than the bank system, potentially lowering prices on the 3 to 4 percent fees credit cards often charge. Rather than spend three days clearing stock trades, brokerage houses could trade nearly instantly and know that stocks aren’t accidentally appearing in multiple deals.

As our health record go digital, Cuomo says the blockchain could keep them mobile while making sure they’re secure. “You can put business logic on the ledger, so it could describe how the asset can move around. You can say, ‘I’m going to grant access to my ledger for 24 hours to this hospital,’” Cuomo says.

Some companies are jumping in now, with their own blockchain programs. But to create a flexible blockchain system that can power everything from banks to rental cars and digital movie rentals, businesses are going to need an open source programming project even bigger than bitcoin. That’s where the Hyperledger Project comes in.

The Hyperledger is part of Linux Foundation, which started as an outgrowth of the open source operating system that drives Google’s Android phones and most of the world’s smart TV sets and stereo systems. The foundation creates projects that are open source, meaning they can be shared or edited by anyone. The beauty of the open source system is that multiple companies can share the work of what is usually the least profitable part of technological development: the unsexy libraries and cryptography standards that underlie systems. In the metaphor of building a house, “we’re in the plumbing business,” Zemlin jokes. And there’s another benefit to sharing the development. “A shared code base is way of creating a standard at the same time,” Zemlin says, so companies will be creating the rules for coexisting on a blockchain while they’re creating it.

As with any technology with the power to change things, a host of companies are eager to claim their share as early as possible; giants like IBM, Accenture, Fujitsu, Intel and Hitachi have all signed on to the Hyperledger project. “Is the blockchain technology going to be fundamental? I think the answer is overwhelmingly likely to be yes,” Larry Summers, the former secretary of the Treasury in the Clinton administration, told a blockchain-centered conference last week.

But there are also challenges ahead. The blockchain as it works right now maxes out at seven transactions a second. Credit card companies can handle thousands of times that number. For the blockchain to really succeed it needs to get bigger and faster. And business blockchains will have to avoid the types of schisms that have plagued the bitcoin developer community, like the one over the size of the blockchain, which some argue has held back the speed of transactions.

Cuomo says there’s widespread consensus on how to avoid those problems, though, and the Linux Foundation has shown it can manage competing visions and egos, a bit like when Phil Jackson ran the Bulls.

The future of bitcoin is unclear. Right now, it’s holding its value, despite the collapse of the Mt. Gox exchange, the association with the black market Silk Road and its ongoing use in ransomware. At the conference, Summers was open to bitcoin as a “store of value, the same way as people use gold.” Then again, he also said he hadn’t bought any. Whatever happens with bitcoin as money, part of its technology may indeed change finance as we know it, but with the help of the banks and countries it was trying to free us from.

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