Len Bass on Blockchain Disruption

Source: Architecture for Blockchain Applications ¹

Two questions to answer when calling blockchain disruptive:

• Disruptive to whom?
• What does the disruption consist of ?

Blockchains are disruptive to the producer. However, their existence will only be indirect on the consumer.

Blockchain is not disruptive as smart phones or WWW

Blockchain is essentially a distributed data base + encryption + immutability + stored procedures (i.e., smart contracts). Thus, there is no inherent reason why existing distributed database systems cannot be extended to add these features. By replacing one technology with a better, faster, less error prone one, blockchains are not necessarily life changing to any participants except for those who are displaced by the labour saving.

"Given no legal or regulatory precedent, establishing a shared arrangement between regulator and financial institutions will be arduous. ²" It means that achieving the benefit promised by blockchain requires a degree of cooperation that is unprecedented among institutions. Morever, that if that cooperation is achieved, then the existing technology can handle it.

The true benefit of blockchain is that it offers an opportunity to rethink financial systems and arrangement. Its hypes and discussions help driving the management to the decision of financing for updating and rethinking systems.

Use cases for blockchains where disruption might occur

Supply chain

The current process for supply chain that cross international borders is as follows:

1. The producer and the buyer agree on a price
2. The buyer provides some proof of funds, such as a letter of credit
3. The producer produces and ships the goods
4. The goods travel through several changes of responsibility and end up at the consumer
5. The producer cashes in the letter of credit

Two problems with the existing supply chain process crossing international borders:

1. The process takes months, during which the exchange rates fluctuate. Thus, both sides are engaged in currency speculation
2. The changes of responsibility cause discrepancy between relevant computer systems, which must be reconciled manually.

How blockchain disrupt

• Blockchain acts as the only source of truth, thus no reconciliation is needed.
• Blockchain with smart contracts can act as an escrow that enables incremental payment at each change of responsibility, reducing the risk of currency fluctuation to the producer.

The use of smart contracts and removal of reconciliation can automate some processes, disrupting the ones that it replaces.

Proof of Identity

How identity works currently:

1. We acquire a proof of identity, such as a driver's license or passport, by providing some other proof of identity to a trusted authority
2. The trusted authority then issues the proof of identity
3. We carry this proof of identity and present it on demand

With blockchain:

• The trusted authority can enter the identity onto the blockchain.
• We can save this information to a smart card or retrieve it through some forms of secure access.
• The individual or system that is interested in our identity will recover it from the blockchain

Blockchain-based identity does not rely on physical papers such as passports. Moreover, we do not need multiple forms of identification. There is only a single source of identity and attributes for us. This will simplify our lives and disrupt the people who are involved in the production and verification of identification documents.

Regulation Compliance

Financial institutions must comply with a variety of regulations, which are verified by individuals in some regulatory agency through an audit process:

1. Individuals from the financial institution must collect the relevant information
2. Individuals from the regulatory agency will examine the information provided to determine whether it confirms to the regulation
3. The regulatory agency will also do spot audits of the source of informations to determine that the provided information is in fact repesentative of the data that they are auditing.

How blockchain disrupt:

• Both the auditors and the financial institution can access the data from the blockchain with assurance that they are looking at the same data.
• Automated systems can produce the reports based on blockchain data for either the regulatory side or the financial institution side.