The revolutionary potential of blockchain technology

Jessica Holland
Jessica Holland

Blockchain technology is reshaping every industry, and the UAE is ensuring it is ahead of the game

Every so often we witness technology so revolutionary it changes our outlook,” said Arif Amiri, CEO of Dubai International Financial Centre Authority, in a statement in February 2016. “Blockchain is such a technology.”

He was commenting on the launch of the Global Blockchain Council: a Dubai-based initiative to bring government agencies and local companies together in order to explore the possibilities created this new innovation, which has the potential to disrupt not only financial services but virtually every industry from logistics to defence. In May, seven pilot projects were unveiled by the Dubai Future Foundation, demonstrating the application of blockchains in fields including diamond authentication, health records, antiques trading and tourist loyalty points.

“It’s incredible what this technology can do,” says Pinaki Aich, Vice President of Group Strategy at the Dubai International Financial Centre, who presented a proof of concept for blockchain-based wills, and contracts that would help founder-led businesses transfer ownership. “It’s just a matter of time,” he added.

Blockchain was invented as the framework behind the digital currency bitcoin, which was released in early 2009 by a pseudonymous figure called Satoshi Nakamoto. It is a system that was built to run autonomously, needing no central authority to manage the currency. Anyone can offer up the processing power of their computer to keep the system running, in return for a small fee paid in bitcoin. These “miners” compete to verify each transaction made, by solving incredibly complicated computational problems. When each puzzle is cracked, it enables a bundle of transactions or “block” to be added to the database (or “chain” of blocks), which becomes available publicly to all users simultaneously.

This type of system is known as a “distributed ledger”, with any reflected in all copies almost instantly. Distributed ledgers are extremely resistant to cyber attack, because there is no single point of failure: a hack would have to attack all the copies simultaneously in order to be successful. The blockchain behind bitcoin is permission-free: anyone can add to it if they can solve the cryptographic puzzles required. However, companies are starting to build their own versions of blockchain – distributed ledgers that have a controlling authority or owner-granting permissions.

Because blockchain was invented to create a currency, its most immediate impact is on the world of finance. Bitcoin itself has the potential to be a disruptive force in this industry. There are problems with the cryptocurrency – volatility in value, an association with illegal activity due to the anonymity it grants users, a hard limit on how many transactions it can process each second – but it’s opening up new markets. Start-ups are springing up all over the world in order to take advantage of the fact that bitcoin can enable international payments that are cheaper than those that are made via bank transfer or credit card.

Two bitcoin start-ups in Dubai who are working with the Dubai Blockchain Council are Umbrellab, a bitcoin software company and consultancy that helps businesses accept payments in bitcoin, and BitOasis, a platform that allows users to buy bitcoins using UAE dirhams and provides a wallet where they can securely store their digital currency.

There are a many demographic types who might want to use such a wallet: such as a Filipino working in the Gulf to pay his family’s bills back home, a Chinese teenager buying add-ons for an online computer game, and a South African ordering an artisan-made object from an Etsy seller living in Tanzania. Each of these payments might be so small – a few dollars or less – that wiring money or transferring bank funds would be much more expensive than what was being paid for, but bitcoin allows “micropayments” to be made for a tiny fee. It also opens up digital payments to the two billion adults worldwide without a bank account, in the same way that mobile payment technologies such as M-Pesa have done. “We’re talking about money reinvented,” says Umbrellab founder and CEO Tarik Kaddoumi.

Global e-commerce is an industry worth trillions of dollars. If a cryptocurrency such as bitcoin “did nothing but take 20 per cent of the world’s online shopping, and bring people in who don’t have a credit card,” Aich says, “that’s a huge market.” Brick-and-mortar stores are also starting to accept bitcoin, too, from a record shop in Berlin called the Long Player, to the Pizza Guys pizzeria in Dubai.

All this sounds like bad news for banks and governments, the traditional middlemen of the financial system, who aren’t required to play any role within the bitcoin ecosystem. But in fact, these two types of institution are poised to benefit the most from Satoshi Nakamoto’s technological innovation. If they can build their own versions of blockchains, they can streamline their administrative functions, cut costs, improve security and speed up transactions. “We’ve been very keen,” said Baihas Baghdadi, Global Head of Trade & Working Capital at Barclays, [to use] blockchain technology to save time and money for our clients, and potentially transform trade finance for businesses around the world.” He was talking in September 2016, as Barclays made a pioneering transaction using a blockchain, in partnership with the Israeli start-up Wave.

If bitcoin is like the internet then private blockchains are like company intranets. That’s how BitOasis founder and CEO Ola Doudin sees the situation. While intranets have less potential to reshape society, she says, “you can definitely make the work of a certain corporation more efficient if you have an intranet.”

That’s already happening all over the world. A group of 45 banks and financial companies, which includes Barclays, Credit Suisse, JP Morgan and Goldman Sachs, has created the tech start-up R3 CEV to come up with its own blockchain-related solutions. In August 2016, it filed for a patent for the software behind a new platform called Corda, which aims to connect bank operations within firms and across rival firms.

What’s being solved is the "21st century’s paperwork crisis,” R3’s CTO Richard G Brown wrote on his blog in October. Rather than each bank maintaining its own records, a platform like Corda would allow "parties who don’t fully trust each other to form and maintain consensus about the existence, status and evolution of a set of shared facts.” In another post, he says that distributed ledger technology "represents a once-in-a-generation opportunity to transform the economics of data management across the financial industry."

Tunisia recently became the world’s first country to issue a digital version of its national currency – called the e-Dinar – using blockchain technology, and Estonia is using distributed ledgers to run its “e-government system,” which allows citizens to easily and instantly vote and pay taxes online. “The whole government of Estonia,” Aich says, “literally runs through a blockchain”.

The whole government of Estonia literally runs through a blockchain

Pinaki Aich, Vice President of Group Strategy, Dubai International Financial Centre

Blockchain may even have an impact on the music industry. Phil Barry is the founder and CEO of Blokur, a London-based start-up that’s using blockchain to manage musicians’ creative rights and automate royalty payments. He previously released a song by British singer Imogen Heap on a blockchain-based platform called Ujo. Whenever the song was bought, the musicians who contributed to it were automatically allocated their royalties in a transparent way. It was also possible to buy just the drum track, for example, and ensure that the drummer was compensated according to her contract.

Ujo was a “test case,” Barry says: an entire platform built for just a single song. Blokur is the “logical next step in the journey,” and the company is currently “working with a number of digital music services and rights holders to create a platform that can work at scale.” Eventually, he wants the technology to apply not only to music rights, but also to other creative endeavours, such as films and 3D printing designs. “Blockchain has the potential to be disruptive wherever there is currently a requirement for a third party to provide trust,” he says. “Once you start to think about that, the potential applications are almost infinite.”

Barry concedes that we are only at the beginning of the journey. “It would be foolish to try and predict the future with any certainty,” he says, nevertheless pointing out trust-providers in the current online world include companies like Uber, Facebook, Airbnb and eBay. At least some part of the role of every one of those companies has the potential to be displaced by blockchain,” he adds.

Aich goes even further in imagining how the world might be changed by the technology. In India, where a project is underway to create a biometric ID for every citizen, he says that a blockchain could be implemented to ensure that aid gets to the right people during a drought: with a public ledger recording each aid package and each intended recipient, it’s less likely that goods will be siphoned away.

And if you combine blockchains not only with biometrics but also with big data analytics and artificial intelligence (AI), Aich points out, you can start to automate huge chunks of administration. He mentions previous industrial revolutions, driven first by steam and electricity, and then by computers and the internet. “This is probably the next wave of evolution,” he says.

A vast, tamper-proof data network empowered by AI to carry out unlimited tasks without the need for oversight could eliminate the need for thousands, if not millions, of jobs. If someone somehow found a way to hack this system, the results would be catastrophic. But Aich remains optimistic about this vision of the future. “If you look at history, when jobs are lost, other jobs are created,” he says. “It’s probably that time in evolution where we need to look at our skills and upgrade ourselves. There are a lot of exciting things coming.”