Picture: ISTOCK
Picture: ISTOCK

The Dutch city of Rotterdam wants to use blockchain to record lease contracts, while Sweden and Honduras are looking to place their land registries on blockchain.

In Kenya, the government is running pilots, with the help of tech giant IBM, to test blockchain technology in the management of health, education and property records.

It may sound a little like science fiction, but blockchain can change the way we transact. It enables people to take control of their money, data, identity and property, without needing a bank or government department to verify and safeguard these assets.

Bitcoin is the best-known public blockchain, but the possibilities are endless

As its name suggests, blockchain is a chain of blocks, each one a record of a transaction, which permanently lives on the Internet.

It is a virtual ledger that accepts inputs from different parties — such as transactions using cryptocurrencies — and can only be changed when there is a consensus among the group. Once a transaction is recorded it cannot be undone or duplicated, preventing "double spending". In other words, existing blocks cannot be changed; only new blocks can be added.

This immutable online record is decentralised — that is, controlled by the consensus of each member of that particular blockchain, whether it be public or private.

Bitcoin is the best-known public blockchain, but the possibilities are endless.

Insurer New York Life is piloting a rewards programme whereby its customers, many of whom wear Fitbits, are awarded tokens based on their daily step count. These tokens are transferred, via a blockchain, to a microinsurance company in Zambia, which can use them to fund insurance policies.

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A company called Bitnation is using blockchain to offer refugees an emergency digital ID and Bitcoin-based credit card which can be used to receive funds from family members or friends without bank accounts.

It’s far from clear which of the many examples will stick, but established institutions are investing billions to ensure they don’t get left behind.

"Financial institutions understand there is a risk that they could be excluded from certain transactions and that is why we are seeing [them] leading the charge and trying to understand blockchain," says Chemaly.

Just as no-one imagined social media and e-commerce in the early days of the Internet, so no-one knows how blockchain technology will shape the future.

"Blockchain is just another enabler for digital disruption," says Cillian Leonowicz, a senior manager in Deloitte Consulting’s Ireland-based blockchain lab.

Tellingly, while few of us have any clue how basic Internet protocol, TCP/IP, works, that doesn’t stop us from using it every day.

That certain professions will be affected goes without saying. Chemaly was recently asked at an internal seminar on blockchain whether lawyers would need to be able to code to compile self-executing smart contracts stored on a blockchain. It’s possible.

Deloitte is spending US$250m exploring the future of auditing in a rapidly digitising world, where auditors may not be needed to establish the veracity of transactions, says Leonowicz.

Regulators are scrambling to understand the technology too. The SA Reserve Bank has said it is open to blockchain.

That makes them more secure, and it also means there’s no need for a central authority, such as clearing houses and banks, to approve transactions.

"It’s almost like an Excel spreadsheet done in PDF. You can’t change parts of it electronically," says Steve Chemaly, director of Norton Rose Fulbright’s banking and finance practice.

Blockchain technology is the great leveller. It’s a leapfrogger

Leonowicz says he is impressed with governor Lesetja Kganyago’s handle on the technology, which he says is way ahead of some other regulators.

Until the technology is regulated, it will remain nascent, he says.

The other difficulty in many of the use cases is verifying the first record. "I could sell you my house on blockchain, but you first need to know that I own it," Leonowicz explains.

This may be why Chemaly expects the technology to develop on a hybrid basis, where transactions are executed partly using blockchain and partly traditional methods.

Certainly there is scope for more private blockchains, particularly among banks, where only authorised users have access and can execute transactions between themselves more effectively.

"At an intuitive level, blockchain speaks to millennials — who have less faith in institutions and place a greater reliance on networks," says Rohan Isaacs, head of technology and privacy at Norton Rose Fulbright.

Leonowicz believes there is huge opportunity for African nations to use blockchain technology. "This is the great leveller. It’s a leapfrogger," he says.

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