IBM sees blockchain as ready for government use

In testimony before a congressional committee, IBM's Jerry Cuomo warned against over-regulation because of cryptocurrency volatility, said the government should embrace the distributed ledger technology and encouraged its use in the enterprise.

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IBM sees blockchain as much more than the foundation for cryptocurrencies like Bitcoin and wants the government to consider embracing it as a way of saving time, cost and risk.

IBM is among a growing number of vendors offering blockchain as a service (BaaS), which allows enterprises to pilot the technology without massive capital expenditures related to onsite development and hardware.

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Google search traffic for the term "blockchain"

Blockchain is 'transformative' as projects proliferate

IBM fellow Jerry Cuomo told the House Committee on Science, Space and Technology on Wednesday that blockchain is "transformative" and said his company has engaged in more than 400 blockchain projects across a number of industries, including supply chain, financial services, healthcare and government. And while the U.S. is leading the world in blockchain development, he called for more government efforts to promote and deploy the technology itself.

For example, the Congressional Blockchain Caucus, launched in 2016, is working to collect information on blockchain projects that could help individuals securely establish their identity, enable online payments – such as tax payments – and revamp supply chains.

And 451 Research senior analyst Csilla Zsigri, in a recent interview with Computerworld, said governments would see benefits in using the technology to digitize documentation and make access to public services quicker and easier – while saving money and time in the process.

Zsigri noted that Estonia has been using blockchain for its e-Estonia program, which enables online tax payments, digital ID, i-voting, and electronic health records platforms.

"Today, most bureaucratic processes (except for marriage/divorce I think) can be done online, which reportedly saves Estonia ~2% of GDP a year," Zsigri said. "All databases – education, healthcare, tax, police, etc. – are digitally linked on the data exchange platform: X-Road.

The Dubai Government is working on a city-wide blockchain pilot with IBM and ConsenSys to streamline ID verification to reduce business registration times, and is digitizing and tracking citizens' health records, wills and contracts, among other assets, Zsigri said.

Cuomo also warned Congress about seeking to overregulate the industry because of the volatile cryptocurrency market, explaining that digital tokens – while based on blockchain – do not represent the potential of the technology. Regulators looking to reign in cryptocurrency, should ensure "that there will not be unintended consequences that stymie the innovation and development surrounding blockchain," Cuomo said.

Governments eye a crypto crackdown

The U.S., China and other countries have lately considered a more hands-on regulatory approach to cryptocurrencies to control what has become a kind of digital token Wild West.

There is a growing concern that cryptocurrency could be a threat to the global financial system through unbridled speculation and unsecured borrowing by consumers looking to purchase the virtual money.

Cuomo said IBM is currently working with the U.S. Food and Drug Administration, the Centers for Disease Control and Prevention and the Office of Personnel Management to explore how blockchain can reduce complexity.

"First and foremost, blockchain is changing the game. In today's digitally networked world, no single institution works in isolation. At the center of a blockchain is this notion of a shared immutable ledger. You see, members of a blockchain network each have an exact copy of the ledger," Cuomo said. "Therefore, all participants in an interaction have an up-to-date ledger that reflects the most recent transactions – and these transactions, once entered, cannot be changed on the ledger."

For blockchain to fulfill its potential, it must be "open," Cuomo emphasized, and based on non-proprietary technology that will encourage widespread industry adoption by ensuring compatibility and interoperability.

IBM is among a group of 180 industry vendors participating in the Hyperledger Project, an open-source blockchain platform backed by the Linux Foundation.

Successful blockchain projects

Cuomo illustrated the technology's value by describing a partnership with Maersk, the world's largest shipping company. Maersk deployed a blockchain-based trading platform based on IBM's BaaS for its ocean freight business. The blockchain pilot replaces a mainly paper-based shipment tracking system.

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A new blockchain based, distributed electronic ledger could save the shipping industry billions of dollars a year by replacing a current EDI and paper-based system for tracking cargo and attaining approval from customs and port authorities.

Michael White, former president of Maersk Line in North America and CEO of the new venture with IBM, said blockchain significantly increases efficiency and security because, while the network is open to participants, its used of double encryption and immutability make it a record users can trust.

Blockchains can be encrypted or unencrypted, depending on the level of security required, but records are auditable because the data in the database cannot be changed and is tied to each authorized participant in the chain.

"If anything changes in a document..., it's immediately apparent to all," White said in an interview with Computerworld.

Blockchain's native immutability as a distributed ledger can also create an automatic audit trail for regulators, something with which many industries, including financial services, have struggled.

In listing blockchain's attributes, Cuomo explained to the committee that:

  • Time is saved because multi-party transactions can settle immediately, avoiding exhaustive reconciliation that often takes days or even months.
  • Costs are reduced because business-to-business processing eliminates overhead caused by "middlemen."
  • And risk is mitigated because the ledger acts as an immutable audit trail, greatly reducing the chances for tampering and collusion.

IBM's research lab is also exploring blockchain as a method for verifying the authenticity of physical assets, such as a type of a diamond, petroleum or a manufactured part as a corresponding digital asset in a blockchain network to help ensure provenance.

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"Smartphone-based artificial intelligence technology [can be] used to scan the high value item," he said. "Using light spectral analysis to capture the microscopic properties, viscosity and other identifiers creates a digital fingerprint that can be used to verify authenticity and avoid counterfeiting documents or fake substitute products."

IBM is also working with SecureKey and the Sovrin Foundation to build a global ecosystem of blockchain identity networks backed by industry standards that ensure only the information that needs to be shared is. With blockchain, identity theft and fraud can be significantly reduced while the effectiveness of government-mandated Know-Your-Customer and Anti-Money Laundering rules is enhanced.

Blockchain's immutable record is natively auditable, allowing members to follow and adhere to existing government regulations like HIPAA and General Data Protection Regulations (GDPR), Cuomo explained.

Microsoft just announced plans to pilot a blockchain-based digital ID platform that would allow users to control access to sensitive online information via an encrypted data hub.

Blockchain: Beyond the recent hype, more to do

While blockchain's potential for industry change is still emerging, there remains a great deal of industry hype around it; as a result, many enterprises are rolling out projects without first identifying a real need for blockchain or accounting for costs.

"We're no longer crawling on the floor, but when talking to companies deeply into blockchain projects – some started years ago – the more they work with it the more they see there's still stuff to be fixed," said Forrester Research principal analyst Martha Bennett.

In a recent Webinar, Bennett described blockchain technology as a write-once, append-many store of records; a record could be just the hash or a transaction that lives elsewhere, or it could be all of the transaction data or an image file.

But immutable, blockchain isn't; it's simply prohibitively expensive to change anything in a blockchain environment because its architecture requires a majority of users to agree on changes.

Additionally, by default, all data that is on chain is in the clear, even when it's a permissioned and non-public blockchain like bitcoin.

Other problems with blockchain also exist.

For example, the open-source blockchain Ethereum Foundation is exploring ways to fix native performance issues associated with the technology.

"There's a lot of talk around blockchain technology as if it were something real and finished where you can buy a CRM system," Bennett said. "Not so in the case of blockchain. It has some growing up to do."

One of the biggest challenges: what is the governance model that applies to a blockchain-based network? For example, what are the participant's rights, their obligations, how are conflicts resolved, and how is liability handled?

"What are the decision flows if a remedial action needs to be taken because a bug is discovered or a smart contract interacted with another smart contract in unexpected ways?" Bennett said. "Those pieces still need to be assembled."

Smart contracts, one of the more attractive aspects of blockchain technology, are a form of business automation where rules can be created to automatically execute actions, such as transferring funds once certain conditions between two business parties are met.

"Strictly speaking, smart contracts are not smart or contracts in the legal sense," Bennett explained. "That's why some developers working with blockchain-based architectures are saying we're not even going there yet. For others, that's still some of the most promising areas they want to drive forward in 2018."

IBM's Cuomo also cautioned Congress that the need for security continues to be highlighted by blockchain "breaches in the news every month.

"As much as everyone tries, it's impossible to eliminate all people with malicious intent or sloppy actions," he said.

An enterprise blockchain network must implement algorithms like crash and byzantine fault tolerance, which allow a network to continue to operate even in the presence of "bad actors or carelessness" – something that is delivered today in Hyperledger Fabric, one of the frameworks from the Hyperledger project, Cuomo explained.

"Blockchain is ready for government, now let's get government ready for blockchain," Cuomo said. "Carefully evaluate policies established regarding cryptocurrencies to ensure that there will not be unintended consequences that stymie the innovation and development surrounding blockchain. A policy that has not been carefully vetted could risk inhibiting the U.S. leadership position."

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