Blockchain is as significant now as the internet was three decades ago.
Many of us still have difficulty understanding what blockchain is all about, with many going as far as thinking that blockchain and bitcoin are one and the same. There is also a difference between blockchain and DLT. In reality blockchain is to bitcoin what internet is to email – a big electronic system, on top of which you can build applications, cryptocurrencies being one. At its core, blockchain is an open, decentralized ledger that records transactions between parties in a permanent way without needing third-party authentication. In simpler words blockchain is a technology which allows users to add data and various information in blocks one after another. Once the block of data is added, another block adds up in a continuous chain and so on and so forth, without the possibility of any entity or individual going back and change the supplied information due to a very smart mathematical approach implemented in this technology and the wide scattering of the blockchain across numerous nodes (computers) serving to store this information.
Distributed ledger technology per se is a digital system for recording transactions in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administrator functionality. Blockchain is a type of DLT, a subcategory of a wider definition.
Those who understood the power that this new technology has to offer, have been keen to invest in its application, and such surge of investment has led to hundreds of startups and entrepreneurs capitalizing on it to develop an array of applications which today cover supply chains, healthcare, insurance, transportation, voting, contract management and more.
Many predict that DLT is reinventing and transforming key industries and creating new business models, making every transaction transparent, democratic, decentralized, efficient and secure. The belief in blockchain's potential is so widespread that financial and tech entities have invested an estimate of $1.4 billion in 2016, which is expected to go up to $2.1 billion in 2018. IBM, a major investor in the technology, has 1,000 employees working on blockchain-powered projects with a $200 million budget dedicated for development.
Looking at the financial services industry, some even believe that blockchain will lead to a complete disintermediation of middle and back office processes. Blockchain can potentially create a reporting system that is more effective and secure than current solutions, increasing both transparency and efficiency in a highly fragmented industry.
All these signs point to blockchain becoming mainstream. Since January 2015, the total market capitalization of cryptocurrencies has increased more than 4,000%, with all signs indicating that this will increase exponentially as it continues making inroads towards mass adoption. An explosion of digital-asset exchanges has massively increased liquidity. Influential firms such as Goldman Sachs are already investigating setting up departments to take advantage of this new asset class. Banks, with the likes of UBS, Barclays and HSBC, are looking into developing a new, streamlined payment mechanism for institutional purposes or to develop their own digital currency. A further tangible example is the National Bank of Abu Dhabi (NBAD) that has become the first bank in the Middle East to use Ripple's cryptocurrency solution to provide real-time cross-border payments to its customers. Santander and MoneyGram are likely to follow suit.
Governments across all the globe are also taking notice, with the likes of India, Russia, Canada , Venezuela, Sweden and Japan currently exploring the introduction of national cryptocurrencies to supplement their more tangible fiat currencies, with Japan having also officially recognized bitcoin as legal tender.
As an innovation leader, Malta has also been quick to jump on the blockchain band wagon with the Maltese government having actively sought to position the island as a major hub in terms of the digital economy. Amongst other initiatives taken up by government, the island is offering a regulatory framework instilling the necessary clarity and certainty to set up shop on the island, further augmenting its position as the ideal place for blockchain to really hit its stride whilst paving the way for further interest and investment. Also, in contrast to other jurisdictions, Maltese legislators have understand that blockchain is much more than just cryptocurrencies. Malta is not simply being lenient to attract business, it is also ideal as an ICO jurisdiction. One can say that it is writing laws for tomorrow's economy rather than trying to impose yesterday's rules upon it, with good examples being its treatment of smart contracts and DAOs (Decentralised Autonomous Organisations). A new regulatory body – the Digital Innovation Authority – has also been set up, whose role, amongst others, will include auditing the code of smart contracts and DAOs.
Malta is also leaving its mark amongst issuers of tokens and new cryptocurrencies, having made it possible for the issuers to issue tokens which are not security tokens but are still regulated and would therefore have the authority's approval. The authority's validation gives investors more assurance in investing in new cryptocurrencies.
The European Union currently does not have a specific legal framework governing blockchain-related activities, and Malta aims to serve as an example, and possibly influence, regulators in Europe and the rest of the world.
The Malta Virtual Financial Asset Act
Blockchain as a new technology holds great potential to significantly improve efficiencies in almost anything we do today. As a pure technology it has the potential to enable us to perform functions we cannot do today. As a technology, it can be adopted by businesses, individuals in any part of the world without needing to be regulated or approved.
How Grant Thornton can help
Applied knowledge is the key. Knowing the technology and being aware of innovation is the beginning; applying it to every day routines to garner efficiency is the way forward. Grant Thornton is constantly pursuing excellence through innovation and blockchain technology provides immense opportunity. Several Grant Thornton firms around the globe have embarked on audacious projects and entered into exciting partnerships with many startups of the blockchain ecosystem, with the aim of leveraging this knowledge to provide our customers with the best advisory and technical consultancy services.
Our local and global team of experienced business, technology and regulatory leaders can help you identify how blockchain can benefit your organization and how to rapidly move these initiatives forward.
If you care enough to recognise what blockchain technology can offer to the future of financial technology, then your future is bright and we are here to help.