Industries are looking for the profit in blockchain
Bank consortium and blockchain
Back in October 2017 the bank, which just happens to be the biggest in the USA, revealed that it and several other banks were conducting tests with sending payments using blockchain technology. The banks acknowledged that using decentralised ledger technology (DLT) would simplify the process and reduce the time involved in the process from “weeks to hours.”
The group of banks, now naming themselves the Interbank Information Network (IIN) grew in number, all of them seeking to leverage the power of the blockchain. Some have been testing the use of Ripple’s technology, while others have been exploring Hyperledger and the Enterprise Ethereum Alliance platforms.
Some see it all as a way of getting media attention: mention ‘blockchain’ in your press release and the story is bound to find its way to print is the thinking. But Michael del Castillo at Forbes, writes that there is a little-known economic principle powering the phenomenon. He refers to a research paper from Prysm: “Called “hold-up,” the principle dictates that when an individual invests in a group project, that investment is worth more as part of the group than outside it, giving others bargaining power equal to the investment.”
Tackling the ‘hold up’ principle
He describes the principle as being similar to the ‘hold up’ in a bank robbery. He says, “Like an old-fashioned bank robbery, the unlucky investor can essentially be “held up” for the value of the funds and other resources invested in the group and forced into undesirable situations, discouraging participation in the consortium at all and undermining even the greatest potential benefits.”
What he is getting at is that blockchain removes the ‘hold up’ situation. In the IIN consortia using blockchain allows members to share data, “without requiring that they hand over control of the actual data itself, where it could be easily copied and drained of its value.” As del Castillo sums it up, “As a result, competitors linked together via a blockchain are free to invest in common goals, and if they choose to leave the group in the future they can take their data with them as easily as one moves a bitcoin.”
And there is money to be made from it. Research company Gartner estimates that the business value locked up in these blockchain consortia and elsewhere in the industry will reach $3.1 trillion by 2030.
It is not only banks that are forming blockchain consortia. Across the medical industry there are new groupings emerging all the time, and the automobile sector is another.
Industry consortia want to solve blockchain snags
But there are still some snags to be ironed out, especially regarding the ‘hold up’ scenario. The Prysm research suggests that consortia creators identify past causes of hold-up in their industry and code smart contracts that account for them, and that the data is “structured in a way that is readable both on or off a blockchain, making it easier to not only integrate with other consortia, but leave them.”
Some answers, or remedies, that will allow competitors to work together more effectively are to be presented at Consensus 2019 this week. We are seeing progress in the adoption of blockchain that goes beyond it being confined to being the technology that has ‘something to do with cryptocurrency’.