Distributed ledger technology (DLT) is being heralded as the next great technology – acting as a catalyst for a new technological revolution and creating the first truly digital economy. In 2017 the world watched as the price and market capitalisation of Bitcoin skyrocketed by over 1,300 percent .

Excitement brought with it claims that ‘distributed ledgers are the way of the future’. With the World Economic Forum predicting that 10 percent of global GDP will be stored on blockchain by 2027, it’s hard to dismiss a key role for distributed ledgers in future systems.2

The hysteria surrounding Bitcoin, the first and most well-known application of DLT, has led (rather misleadingly) to the terms Bitcoin, Blockchain and DLT becoming synonymous. These terms aren’t interchangeable – Blockchain is simply one form of distributed ledger design.3 Appreciating the disruptive potential of DLT requires an understanding of its underlying characteristics and its distinctions from traditional ledgers.

Historically, the evolution of ledgers was restricted to improvements in the material on which it is recorded – from clay to papyrus, vellum, paper and most recently onto computers. Distributed ledgers represent something new altogether – the collaborative creation of an asset database which can be shared across a network of multiple sites, geographies or institutions.4

The Evolution of DLT

2017 was a milestone year in the evolution of DLT. Industry and government focus began to shift to the unique qualities of DLT. In August 2017 Labor senator Sam Dastyari and Liberal senator Jane Hume co-convened a new ‘Parliamentary Friends of Blockchain’ group intended to champion the use of blockchain technology within government and private industry.5, 6 As the core technologies supporting distributed ledgers have become better understood an explosion of creative potential has ensued, acting as a catalyst for newfound capacity to deliver trust across a wide range of services.4 For example Blockchains are now regularly grouped into three categories which satisfy specific situations: permissioned public, permissioned private and permissionless public.7 Some estimates suggest at least 25 percent of the Global 2000 will implement blockchain services as a foundation for digital trust by 2021.

A comprehensive analysis of major technological revolutions by Perez (2009) uncovered three common drivers of revolutionary change: substantially lower cost inputs, a new method of communication, and altered infrastructure and logistics.8 You could strongly argue that DLT satisfies these criteria and that we may in fact be at the dawn of a new technological revolution.9 In that case, what changes might we expect to see?

Use cases around the world provide some insights into this question, with each capitalising on one or more of the benefits distributed ledgers offer: resilience through decentralisation, enhanced trust through immutability, near real-time reconciliation of transactions, value storage of native digital currencies and typically lower costs than traditional centralised systems.4, 7, 10

Financial institutions in particular have been working to unlock efficiencies created by DLT with expectations they may become the new market infrastructure or backbone of the financial system.11 In 2018 it is likely that we will see a number of projects move out of a proof of concept stage and into production. IBM along with five banks – UBS, Bank of Montreal, Caixabank, Commerzbank and Erste Group Bank – are working together on a blockchain based global trade platform, Batavia.12 Its release is due sometime this year and could have massive implications for trade finance and cross-border payments; the new platform is designed to be openly accessed by organisations worldwide and support more efficient, transparent and cost effective transactions.13

The Adoption of DLT

In December 2017 the Australian Securities Exchange (ASX) became the first major bourse to announce the adoption of blockchain to record shareholdings and manage the clearing and settlement of equity transactions.14 The decision is momentous in that it presents DLT as the new technological benchmark. In reference to the decision, ASX Chief Executive Dominic Stevens remarked that the Clearing House Electronic Subregister System (CHESS) was world leading when it was introduced in the 1990s. After testing, Stevens said “We believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets”.15 According to IDC estimates, 20 percent of trade finance will incorporate blockchain alone by 2020.16

The ability for distributed ledgers to store digital representations of real-world actions is already being used to improve traceability along supply chains – providing documented evidence of the provenance of an asset or object.17 This is especially important to Australian food exporters, who can derive more income by proving Australian origin.17 There are successful pilots of blockchain technology application in the grain industry by CBH group and Agridigital with an expected commercial solution to launch in 2019.19

Ensuring data integrity while sharing between parties will likely transform the way in which the healthcare sector operates — with implications for health records, medical credentials, pharmaceuticals and more.20Scalamed is an Australian start-up offering a new and mobile way to manage personal prescriptions by utilising a cryptographically secure blockchain network to store and access personal data and information in a manner which is private and immutable.21

DLT is likely to have a critical role in the enablement of a true peer-to-peer economy.22 PowerLedger may offer the greatest insight into this disruptive capability, fundamentally changing the balance of power between consumers and large, long-standing centralised authorities.23 The PowerLedger Platform, supported by Power Ledger Tokens, is a trustless, transparent and interoperable energy trading platform which allows peer-to-peer trading of surplus energy from rooftop solar PV systems between neighbours.23

DLT continues to find application beyond cryptocurrency – in trade and finance, cross-border payments, data sharing, traceability and provenance, facilitation of smart contracts and enablement of the peer-to-peer economy. There are a number of functional, operational, governance and legal aspects that need to be carefully considered before the mass adoption of any new technology.24 A technological revolution requires the development of accepted standards and procedures to provide market and industry confidence and encourage interoperability. In 2017 Standards Australia released a roadmap for Blockchain Standards in an effort to develop a collective Australian position on DLT standards to instil industry, consumer and market confidence in their use and application.25 The International Organization for Standardization (ISO) created ISO/TC 307 Blockchain and Distributed Ledger Technologies in 2016 and held its inaugural meeting in April 2017 in Sydney.26 There are currently 4 ISO standards under development and ongoing research by formal working groups into use cases, governance and interoperability.25, 26

2018 is shaping up as another exciting year in the evolution of DLT. Its application has paved the way for widespread innovation which promises to offer ongoing opportunities in Australia and all over the world.

References

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