3. Challenges of emerging business models: the blockchain
Proactive appraisal will also be required as a critical component of the redefinition of
business and recordkeeping that is occurring in emerging business models like the
blockchain.
The blockchain is a distributed, collaborative recordkeeping environment, 'a
network of distributed public databases that leverage cryptography and peer to peer
technology to group data into blocks and store as an immutable chain of
transactions'.7 The significance of the blockchain is that it 'lets people who have no
particular confidence in each other collaborate without having to go through a
neutral central authority. Simply put, it is a machine for creating trust'.8
The purpose of blockchain networks is to create authoritative records, like
distributed ledgers or registries. These trusted, authoritative and distributed records
have the potential to transform how massive business sectors such as finance and
government fundamentally function, because they distribute and open to all
involved partners key records that fuel, authenticate or enable these industries. The
distribution and authentication of these records 'provide supply chain transparency
and data integrity, allowing a visible assurance of authenticity'.9
A 2016 report by the UK Government Chief Scientific Advisor stated that:
Distributed ledger technologies have the potential to help governments to
collect taxes, deliver benefits, issue passports, record land registries, assure
the supply chain of goods and generally ensure the integrity of government
records and services. In the National Health System, the technology offers
the potential to improve health care by improving and authenticating the
delivery of services and by sharing records securely according to exact rules.
For the consumer of all these services, the technology offers the potential,
according to the circumstances, for individual consumers to control access
to personal records and to know who accessed them.10
Ledgers in the blockchain are essentially online, distributed databases that can be
used by any form of business that needs to rely on collaboration and trust. They can
be shared widely across a defined network and all participants in a specific
blockchain have their own identical copy of the ledger which is automatically
updated with any changes that occur. The security and accuracy of the data stored in
the ledger are maintained cryptographically and all changes are tracked. Entries can
also be updated by one, some or all of the participants, according to rules contained
within and agreed to by the network.11 The diamond industry is an early adopter of
the blockchain as a 'global ledger' or recordkeeping system.12 The industry is using
the blockchain to manage diamond identity, provenance, sale and transactional
information and minimise diamond fraud and theft. The distributed recordkeeping
of the blockchain enables significantly greater transparency and tracking of
diamonds than previous personal and paper-based processes.
Smart contracts are emerging forms of blockchain records. They are:
computer program code that is capable of facilitating, executing and
enforcing the negotiation or performance of an agreement using
blockchain technology. The entire process is automated to act as a
complement or a substitute for legal contracts, where the terms of the
smart contract are recorded in a computer language as a set of
instructions.13
Smart contracts are executed when people send digital currency (ether) to the
contract programs. This triggers the execution of the service. As the name implies,
they are designed to be 'smart', self-documenting and self-contained programs that
allow the automated transaction or initiation of the service they provide. 'Smart
contracts are meant to be stand-alone agreements - not subject to interpretation by
outside entities or jurisdictions. The code itself is meant to be the ultimate arbiter of
"the deal" it represents...nothing outside the code can "change the rules" of the
transaction'.14
While still experimental and contentious technology, significant business is already
being performed in blockchain environments. Activities within the ethereum
blockchain network currently support $US1 billion worth of ether currency.15 Many
key industries, such as the finance industry, are considering moving key services to
blockchain environments. The UK Government Chief Scientific Officer recently
concluded that blockchain environments have the capacity:
to reduce the cost of operations, including reducing fraud and error in
payments
to create greater transparency of transactions between government agencies
and citizens
to reduce the cost of protecting citizens' data while creating the possibility to
share data between different entities
to enable easier interaction between small and medium-sized enterprises and
government at all levels
to foster innovation and business growth opportunities for business and
government.16
The blockchain therefore does have the potential to transform business, and records
are at the core of this technology.
Blockchain records are the code and metadata about people, rules, contracts and
transactions that blockchains generate and maintain. These records 'provide a
permanent audit trail, where visibility leads to accountability and trust'.17 The
records may be supported by documents or other forms of information that exist
outside the chain, but diverse forms of metadata and code are the core records of the
blockchain.
63
selectie ii
7 C. Findlay and K. Cumming, 'Blockchain: Applications and implication', https://rkroundtable.
org/2016/04/03/report-on-blockchain-applications-and-implications/ (accessed 25 July 2016).
8 'The promise of the blockchain: the trust machine', The Economist (31 October 2015),
http://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-
how-economy-works-trust-machine (accessed 25 July 2016).
9 P. Godsiff, 'Blockchains could help restore trust in the foods we choose to eat', The Conversation (19 July
2016), https://theconversation.com/blockchains-could-help-restore-trust-in-the-food-we-choose-to-
eat-62276 (accessed 25 July 2016).
10 Government Office for Science, Distributed Ledger Technology: Beyond Block Chain: A Report by the UK
Government Chief Scientific Officer (19 January 2016) 6, https://www.gov.uk/government/news/distributed-
ledger-technology-beyond-block-chain (accessed 25 July 2016).
62
kate cumming en anne picot appraisal in 2016: Australian perspectives on
digital drivers and directions
11 Government Office for Science, Distributed Ledger Technology: Beyond Block Chain, 5.
12 B. Rivlin, 'Diamonds are forever: On the Ethereum blockchain', Eth News (11 July 2016),
http://www.ethnews.com/diamonds-are-forever-on-the-ethereum-blockchain (accessed 25 July 2016).
13 Blockchain Technologies, 'Smart Contracts explained, 2016', retrieved from
http://www.blockchaintechnologies.com/blockchain-smart-contracts (accessed 18 October 2016)
[See also http://glassdigitalmedia.com/smart-contracts-and-the-blockchain-an-introduction
(accessed 20 March 2018) - ed.].
14 D. Siegel, 'Understanding The DAO Attack' (25 June 2016), CoinDesk,
http://www.coindesk.com/understanding-dao-hack-journalists/ (accessed 18 October 2016).
15 D. Siegel, 'Understanding The DAO Attack'.
16 Government Office for Science, Distributed Ledger Technology: Beyond Block Chain, 65.
17 P. Godsiff, 'Blockchains could help restore trust in the foods we choose to eat' (2016).
