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Blockchain could be decades away for Australian enterprises

Blockchain use by Australian enterprises could be decades away despite the hive of activity around the technology

The creation of a regulatory sandbox for innovative fintechs coupled with investments in blockchain by the big banks, law firms and the Australian stock exchange all suggest further massive disruption ahead, but Gartner has issued a stern warning to Australian enterprise that blockchain for business could be up to a decade away.

Bitcoin was the first implementation of the blockchain-based distributed ledger and is available for general use as a public cryptocurrency.

While Bitcoin has a focused use case, its underlying blockchain design could be used for much wider application. A blockchain is a way to represent transactions online, where a unique software block is created for each transaction – such as a transfer of value or property ownership. In a public blockchain such as Bitcoin, that block is distributed, tested and then agreed.

It works in much the same way in the private or closed blockchain community – among a group of banks or trading partners, say – though the processing overheads are likely to be lower in such smaller communities.

When everyone agrees the block is accurate, it is added to a chain that can’t be changed – the blockchain or distributed ledger – which confirms and concludes the transaction without the need for a middleman or trusted third party.

Bitcoin has been operating for seven years, and while it has had a wild ride, it remains operational and the underlying system is intact, though a number of Bitcoin exchanges have been compromised over the years.

Blockchain platforms

Meanwhile a number of other blockchain platforms have emerged. Some are from startups such as Ethereum, which has developed a platform for smart contracts, while industry giants such as IBM, Intel, Fujitsu and VMware are involved in the Hyperledger programme to come up with blockchain platforms and standards. Microsoft has already launched an Azure-based blockchain as a service offering.

However, speaking during a Gartner summit in Sydney, Ray Valdes, research vice president and fellow at Gartner, warned that blockchain was now approaching the peak of its hype, and in the coming nine to 18 months would enter the “trough of disillusionment” on the analyst’s famed hype cycle.

Australian investment

Local businesses continue to invest in the technology nevertheless, with many fintechs spurred by the decision of the Australian Securities and Investment Commission (ASIC) to allow local financial sector startups to test a new product – including blockchain-based solutions – without first acquiring a financial services licence.

Andrew Lai, founder of Fintech Melbourne and FinancialAsk, has described the plans as a game-changer for the sector. Alex Scandurra, boss of fintech hub Stone&Chalk, said it’s a world-leading initiative.

Although the sandbox has yet to launch formally, ASIC has issued a discussion paper and indicated that startups would still need to apply for a licence. In the meantime they will be allowed to test certain systems and products for up to six months. It’s a bid to achieve a balance between consumer protection and innovation support.

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Meanwhile the Commonwealth Scientific and Industrial Research Organisation (CSIRO), through its Data61 initiative, has begun a nine-month investigation of blockchain in association with the Treasury that “will explore the potential benefits or productivity gains for the Australian economy; the skills Australia might require to become a global leader as blockchain technology becomes more prevalent; as well as potential legislative and regulatory implications such as privacy consideration”.

Mark Staples from Data61, one of the project research leaders, said blockchain’s ability to provide a public log of transactions, with strong data integrity and immutability, in which theoretically anyone could choose to participate, made the technology very interesting to a broad sweep of industry sectors and government.

It’s why blockchain-based initiatives are sprouting in many Australian hubs and incubators, often – though not always – focused on finance applications.

For example, Tim Lea, founder and CEO of Sydney-based Veredictum, is exploring how blockchain can be used to protect intellectual property by identifying the provenance of a work, and identifying where at any point in time ownership of that work exists. Although the system is initially targeted for use as a film script registration service, he envisages it perhaps being used to allow videos to be downloaded and fees collected based on IP rights.

ASX project

Emerging companies are not the only ones exploring the area. When the Australian stock exchange (ASX) announced that it was investing in a blockchain startup and exploring how it might use the technology to create a distributed ledger that could help speed settlements to near real time, corporates sat up and started paying attention.

ASX initially took a 5% stake in New York-based fintech Digital Asset Holdings, worth $15m, and in June topped that up with another $7.2m injection.

The Australian arm of international law firm King & Wood Mallesons has also released a smart contract that uses blockchain to construct elements of a contract that lend themselves to being controlled by software (initially for interest rate swaps) which can then be surrounded by more traditionally written contract terms and conditions.

A number of the major banks have projects exploring how to use the blockchain-based Ripple global settlement system, or have joined the R3 and Hyperledger global consortiums investigating the development of blockchain-based systems.

Pointless projects

Gartner’s Valdes was sceptical of all the activity. “This is the year of pointless blockchain projects,” he said. “Others are more charitable and call it blockchain tourism.”

According to him: “You can do all the due diligence you want... no matter what you pick you are going to be unplugging that system if you go into production this year because the technology is immature and there is a misunderstanding of what it can do. There will be new better platforms entering the market in the next 12 to 24 months.”

However, he acknowledged it was important for business to become better informed about blockchain as Gartner was “bullish on the long term but bearish on the short term”. Long term – in five, 10 or 15 years – he said there was a “trillion-dollar opportunity” to strip costs and inefficiencies out of supply chains using blockchain platforms.

Staples said that blockchain was already reasonably well established if not mainstream, and he predicted significantly more activity over the next two to four years. “It’s a bit like the internet – it’s been around for decades but we still find new ways to use it.”

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