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Bitcoin and other cryptocurrencies have started rocking the financial services industry. They also make entrepreneurs think about other applications for blockchain technology underpinning them, including those that deal with different processes within non-financial companies like contracts, auditing, and transport. Digital signatures validate each transaction and a distributed, write-only ledger that constitutes the core of blockchain technology has the potential to provide even more security in these and other fields compared to other Traditional approach is used by businesses.
Blockchain isn’t the only game in town. The recent Linux Foundation disclosure that it is leading an open source effort to develop an alternative to the underlying technology of bitcoin. The initiative, known as the Open Ledger Project, is being supported by a leading consortium of financial technology and services companies, including Wells Fargo, State Street, London Stock Exchange Group, Cisco, Intel, VMware and IBM. IBM, which was the driving force behind the project, is said to have contributed thousands of lines of code to it as well as significant resources for the developer.
The block’s new kid will have some catching up to blockchain, which has been used in some innovative ways. Nasdaq OMX, the parent company of the NASDAQ stock exchange, wants to use this technology to transaction monitoring In stocks of private companies and the Securities and Exchange Commission recently approved an Overstock.com plan involving the issuance of online retailer’s stock using blockchain technology. Startups like Digital Asset Holdings and Coinbase are also looking to profit from an increasing interest in digital tracking and transactions using new approaches.
Companies that gain traction here will get a lot of attention. Investment banking company Magister Advisors think that financial institutions will spend a total of more than $ 1 billion on blockchain related projects in 2017. And finance is just one industry where new technology can drive significant change. In the music world, startups like PeerTracks and Bittunes is moving towards using it to revolutionize the way music is bought and shared. And in the art world, Verisart is harnessing blockchain to improve the way art is secured and verified.
Looking at the enterprise market, there is a huge opportunity to adopt blockchain technology or other variations anywhere involving swaps, transactions or exchanges. One of the most obvious uses is in contractual situations where proof is needed that different parties have committed to a transaction. Companies like Notary public and Bitproof are developing ways to tie digital signatures to blockchain, and some companies are also experimenting with the technology to create margin contracts that hold money on accounts until a mutual agreement is struck.
Another area that I expect to see more activity using blockchain technology is auditing. Deloitte is one of a number of professional service firms experiment with a distributed digital ledger. Here, transactions can be posted to a blockchain, will apply the timestamp and act as a repository. Typically, the auditor chooses only one sample from a set of transactions for testing; but by using the new method, it is possible to securely and cost-effectively verify many types of transactions. There are many regulatory issues still to be resolved, but the chance to provide certainty with significantly less friction is an intriguing one.
There is also a great opportunity to use technology to improve transportation and supply chain management. An example of a startup here is Thingchain, is adopting a bitcoin-inspired cryptosystem for many use cases, including proving where the goods are originated and who owns them.
Many companies are still learning about the potential of blockchain technologies, so it may take some time before we see widespread adoption beyond finance. But the potential is substantial – and not just in the areas that I’ve outlined above. Entrepreneurs are exploring enterprise applications that include everything from patent registration to recording the results of board votes. Expect to see more and more businesses join the blockchain gang in 2016 and beyond.
Martin Giles is a partner of Venture capitalist Wing (@Wing_VC). Previously he was a journalist for The Economist.