How Blockchain Will Transform Business and Society

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The Linux operating system started as a gleam in the eye of a Finnish university student, Linus Torvalds, who simply wanted to find a better way to connect his new PC to his school’s computer system. Now it’s one of the underpinnings of the 21st century economy. Linux is all the proof we need of the power of open source software to change the world.

Today, the Linux Foundation, a nonprofit organization enabling mass innovation through open source, is launching an initiative that could follow a similar trajectory. It’s announcing an open source project to fulfill the tremendous potential of blockchain.

Blockchain is a technology for a new generation of transactional applications that establishes trust, accountability and transparency while streamlining business processes. Think of it as an operating system for interactions. It has the potential to vastly reduce the cost and complexity of getting things done.

It’s essential for blockchain technology to be developed following the open source model so a critical mass of organizations will coalesce around it—and reap its full benefits. Because of the open source rules, participants can trust that the technology will fulfill their needs and conform with industry standards–assuring interoperability between blockchain applications. Also, by sharing the foundational layer, the participants can focus their individual efforts on industry-specific applications, platforms, and hardware systems to support transactions.

We believe that the best path forward for blockchain is for the tech industry, government, and the business community to consolidate their efforts around a single open source blockchain foundation that’s developed and governed in an environment of transparency and cooperation. We also believe that organizations will be best served if they use industry-specific or function-specific extensions of that technology, which are created and governed following the same principles.

For these reasons, we’re throwing our weight behind the Linux Foundation’s open ledger project. Other early commitments have come from Accenture, ANZ Bank, Cisco, Credits, Deutsche Borse, Digital Asset Holdings, DTCC, Fujitsu, IC3, Intel, J.P. Morgan, London Stock Exchange Group, Mitsubishi UFJ Financial Group, R3, State Street, SWIFT, VMware, and Wells Fargo.

In addition to signing on as a charter member, we’re developing an enterprise-grade blockchain software fabric, which is the term the tech industry has chosen to describe this novel architecture. We plan on contributing the fabric to the new project—along with intellectual property related to it. Also, IBM is helping our clients discover what blockchain can do for them and developing commercial products that will serve particular domains or cut across industries.

Blockchain got its start several years ago as a key ingredient of Bitcoin, the crypto currency, but, it turns out, the technology can make a difference whenever valuable assets are transferred from one party to another.

At its essence, blockchain is a distributed ledger shared via a peer-to-peer network. Each participant has a copy of the ledger’s data, and additions or changes to the chain are propagated throughout the network—but only after the parties in the transaction agree on it. This approach enables participants to dispense with a great deal of reviewing and verifying that adds to the cost and time it takes to complete transactions.

There will be many uses for blockchain in business and society. Banks, investment banks, financial marketplaces and insurance companies are pioneers in exploring the possibilities, but the potential uses range far beyond the financials services industry

One of the more intriguing blockchain applications is supply chain management. That’s relevant to nearly every business and government agency.

Executives in charge of an organization’s supply chain must manage relationships with a host of direct suppliers of goods—plus be aware of what’s going on with their suppliers’ suppliers. They have to handle not just the financial transactions, but also plan and manage each step in the process of bringing a product or service to market. So, today, because of all of these separate but related interactions, there’s a tremendous amount of overhead—time delays, pile-on costs, and the potential for mistakes to be made.

Now, imagine supply chains where blockchain is put to work. An aircraft manufacturer, for example, might create a blockchain-based system for holistically managing all of its relationships with suppliers of parts and components. All of the suppliers will share the exact same information about a new aircraft model–every step in the process of planning, designing, assembling, delivering and maintaining it. At the same time, the manufacturer will use other blockchain-based systems for managing the financial relationships and transactions connected to each step.

Thanks to blockchain, trust and accountability are built into supply chains. So are compliance with government regulations and internal rules and processes. The result: reductions in costs and time delays, improved quality, and reduced risks.

Over the past two decades, the Internet has revolutionized many aspects of business and society–making individuals and organizations more productive. Yet the basic mechanics of how people and organizations execute transactions with one another have not been updated for the 21st century. Blockchain could bring to those processes the openness and efficiency we have come to expect in the Internet Era.

Today’s announcement is an important first step toward fulfilling that great promise.

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