What does Blockchain do?
If you’re trying to understand what Blockchain is, you’re probably missing the point. Alright, so we all like to lift the lid on things and understand how they work, but long gone are the days of computers being the preserve of hobbyists, building their own kit and taking it apart. Have you ever taken your smartphone to pieces to find out how it works? Unless you’ve dropped it on a concrete floor, the answer is likely no.
It ‘just works’ to paraphrase the late Steve Jobs, and that’s fine. So, for the sake of argument, let’s just say that Blockchain ‘just works’.
Our belief at Barclays is that Blockchain is a fundamental part of the new operating system for the planet^. What does that mean? Think of a traditional cog-based watch and a smartwatch side-by-side. They both tell the time, but they do so using fundamentally different underlying technology. Blockchain has the potential to transform the way information is shared and verified in a way that internet databases have not been able to.
Some people, therefore, are calling Blockchain the second iteration of the internet – we believe this is perhaps overstating it, but the parallels are startling. Using and even getting the best out of the internet doesn’t rely on you understanding how it works, it’s the information that is created and handled by the internet that matters.
What will Blockchain do and how can we use it?
Isabel Cooke, Barclays’ Blockchain Research & Development Delivery Manager, explains:
"If you asked ten people what they thought the benefits of the internet were, they’d have ten different answers. It’s similar with Blockchain. Bitcoin solved a problem: it is censorship resistant digital cash. But there are other core elements to the technology, for example audit trails, and providing an immutable ledger.
"Creating a really clear audit trail across organisations provides real value – whether that’s with land registration or trade finance. If we have a shared view of data on ledgers, we can then build business logic on top of that, and that can apply to interest rates swaps or smart contracts within the investment bank."
The end of identity theft?
Jeremy Wilson, Vice Chairman, Barclays Corporate Banking and Co-Chairman, Whitechapel Think Tank explains the concept of identity using an immutable ledger:
"Who am I? I am a vice-chairman at Barclays. I am a father. I am a husband. I am a (former) athlete in another life. I am all of these things and more. I am also a number, a whole string of numbers in fact in numerous databases from my employers to the taxman and the security services.
"When I open a new bank account or apply for a new job all of these databases and more are checked in a laborious process. At Barclays, background checks on a new member of staff can take weeks as we ensure that the people we are employing are up to the high standards that we set. We also run a series of checks on our customers when they open accounts with us – Know Your Customer or KYC, as it’s more commonly referred to. This is vitally important for security in our financial system, but it slows business down.
"Blockchain has the ability to eliminate the hurdles of time in identification and verification (ID&V) and KYC; it is a fundamental new foundation for the sharing of information. A secure, distributed ledger can transform the speed of ID&V and help to make sense of the huge amounts of data generated by an individual or corporation.
"If you walk into a branch to open a bank account – in a Blockchain-enabled environment, within 30 seconds we could have checked your identity against sanctions lists, law enforcement agencies, financial records and through the combination of a range of technology unified through the Blockchain we would be able to confidently state that ‘yes, this person is who they say they are, and they are eligible for an account’. A process that might otherwise take days, takes seconds.
"The potential here is that Blockchain could spell the end of identity theft."
A revolution in trade finance
Shona Tatchell, Head of Innovation for Barclays Corporate’s Trade & Working Capital team on trade finance using the Blockchain:
"Global trade is so well established that many of its processes can trace their roots back over centuries. The so-called ‘bill of lading’ is a medieval concept – lading means loading in old English and principally is a receipt issued by the goods carrier to the supplier showing that the goods have been loaded onto a ship and evidences who owns the cargo – which is the supplier until they have been paid.
Traditionally, paper bills of lading have had to be couriered around the world in order for all the parties involved in a transaction – the supplier, buyer, goods carrier and their banks and insurers – to provide all of the assurances and counter-signatures required and for the title to be transferred through endorsement of the paper document itself (just like you can endorse a cheque).
We have now started using a platform called Wave – created by a startup that was a part of own Rise Accelerator^ in New York – to enable the secure signing, endorsement and transfer of bills of lading alongside all of the other documents involved in a trade transaction, including the inspection certificate, insurance certificate, invoice and packing list, around the world.
The impact of this on a complex global supply chain is that we will be able to reduce the time it takes to complete a global transaction from up to 20 days to just a few hours.
As an exporter, that means you can receive your payment within four hours of the goods leaving you, a truly transformational change to a centuries-old process. We’ve proven this is possible in the real world in a successful pilot with Ornua selling dairy products to the Seychelles.
We’re keen to work with other banks to accelerate the adoption of this tech, and we are open to educating other banks and companies to help them learn the lessons that we have already. The opportunity to streamline documentation exchanges are massive, particularly with Brexit ahead, and the mountains of paper that will be flowing from that.
We’ve shown how Blockchain works in the real world, so I think the level of take-up will now start to gather pace."
Seriously though, what’s Blockchain?
- It’s a bit like Google Sheets
You might have seen that email going around the office: “Can whoever’s in the cost tracker close it down so I can edit it?” Well, that’s a little like how a bank account works. When you want to make a transaction, your account is ‘checked out for editing’ and in that moment is inaccessible by anyone else while the transaction is processed. While this process is near-instantaneous, in practice it means there is only one real-time record of the amount of money in an account, viewable by one person at a time.
Now think about Google Sheets; you and a colleague are both accessing a document stored in the cloud at the same time, both making edits at the same time, and both seeing the most up-to-date version of the document. This is basically how Blockchain works; it’s what the ‘distributed’ part of ‘distributed ledger’ means – that multiple users have a simultaneously aligned record of whatever it is you’re trying to record.
- It’s not just for money
You can use it to securely share documents, as Barclays has done with Wave. Forget money, Blockchain is simply a ‘distributed ledger’ – whether that’s an accounts ledger, or a cache of important documents.
- It’s not Bitcoin
Bitcoin is a digital currency. Blockchain is the tech that is used to help record who has how much bitcoin. They may be linked, but they are completely separate.
If you do want to know more about what Blockchain is, read our in-depth piece, written by Barclays’ Innovation Director, George Osborne: ‘Blockchain: what is it?’