Bitcoin’s surge in value near the end of 2017 brought Blockchain to the mainstream, but its impact extends further than cryptocurrencies.
Often resisted and at times publicly discredited, whether out of genuine concern or hidden agendas, Bitcoin reached an all-time high in December 2017 at around €15,000, making it impossible to ignore the revolution. It is no secret that the success (and to some extent, a slower rate of growth) of Bitcoin has brought blockchain and Digital Ledger Technologies (DLTs) into the limelight.
In spite of the controversy, agreement is unanimous in one respect: it is the technology underlying Bitcoin, namely DLT, which is truly valuable. In public blockchains transactions are stored in a distributed ledger and in batches or blocks, where each block of information detailing a transaction is written and stored in sequence by having an embedded fingerprint, or hash key, of the prior block, thereby providing comfort that the integrity of prior blocks is maintained as one would need to change all subsequent blocks if any block would be altered, as otherwise the algorithm would fail and the node gets automatically disqualified from participating in the network. Hash keys can be considered as digital fingerprints using irreversible cryptography, consisting of a set of characters and numbers that would be completely different even if a single character of their subject is changed. Blockchain implementations can be accessible privately (permissioned) or publicly (permissionless). In a private blockchain, permission is required to access the ledger while in a public blockchain, everyone is able to view the transactions taking place.
Just as the Internet consisted of nothing more than an application of existing technology, DLTs enable transaction recording using existing technology while utilising a novel design. The technology for implementing blockchains themselves, may become off-the-shelf and quite cheap. Open source implementations are already available and unlike traditional databases and file systems where control is retained by a single individual, entity or body, blockchains, particularly public decentralised implementations, provide transparency, assurance of integrity to users, resilience to outages (as data is shared amongst nodes), and even gains from technical contributions towards algorithms by society at large where there is consensus. Bitcoin is merely one implementation of this technology.
Other permutations extend to client onboarding, where KPMG in Singapore and Bluzelle Networks have worked with three banks to develop a Know Your Client (KYC) proof-of-concept solution on blockchain making client on-boarding smoother and more efficient. On the customer feedback front, Sydney Water took this to a different level where with the assistance of KPMG Australia, a Customer Hub was developed enabling reporting and addressing customer issues promptly, keeping customers informed of progress in real time during the process.
Turning to smart contracts: as transactions on the blockchain are maintained undeniably and securely, there are clear benefits to be derived from using digital contracts. The major hurdle faced by digital or virtual contracts is their recognition and enforcement at law. Where smart contracts are legally binding, the agent and processing commissions could be removed or in any event reduced drastically.
We at KPMG recognise that blockchain implementation is about managing new and diverse risks. To this end our Blockchain Maturity Model is based upon the Information Systems Audit and Control Association’s Capability Maturity Model. As the controls are benchmarked, KPMG provides recommendations for improving access management, authorisation and provisioning, data management, interoperability, scalability, change management, privacy and security. Get in touch with us and see for yourself.
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