There is increasing interest in the huge potential for distributed ledger technologies to disrupt business, drive innovation and create new economic opportunities for places. A recent report by the Government’s Chief Scientific Advisor highlights the significant implications and opportunities of these new technologies.
Beyond “digitised paper”
Ledgers have supported commerce and government for thousands of years. They record financial transactions, property, taxes, and personal information. And, as the Government report says, for thousands of years whilst the material on which ledgers have recorded has changed – from clay tablets to papyrus, to vellum, to paper, and to digital, until recently the basic process of updating and maintaining these records has stayed the same; the clue is in the term “bookkeeping”.
This lack of innovation is startling. In a recent interview, Chad Cascarilla, CEO of distributed ledger start-up itBit said:
“Depending on the asset, people are still using excel spreadsheets, emails, PDFs to basically reconcile what’s going on in the back office. It’s still very much a bodies business. I would describe it as they’ve just digitised a paper process. They didn’t reimagine it.”
At a recent event at The Mansion House, the Lord Mayor of London, compared this lack of innovation to the huge disruptive change in the taxi market created by Uber, posing the challenge that “the taxi cabs industry has become more innovative than financial services”.
The building blocks of blockchain
But this is all changing as a result of the technology, called a “blockchain”, behind the online currency bitcoin. I won’t try to explain the technology here. The best explanation of I have read is in this excellent article in The Economist. Unlike traditional payment systems where a trusted third party, such as banks, stand behind transactions, there is a database (the “blockchain”) which records payment history and ownership of every bitcoin, but is owned by no-one. But despite this database being open and “distributed”, it is also trustworthy and secure, thanks to the innovative algorithm technology.
The potential applications go far beyond bitcoin. This is potentially a powerful General Purpose Technology which can be used in any field where there is a need to keep reliable, secure and up-to-date records of transactions, information, and contracts.
The implications for financial services back office functions are huge. Current post-trade reconciliation systems could become far more efficient. In developing nations, property rights could become far more secure. In fields such as legal documentation there is potential for different parties to suggest updates and amendments to a single document, vastly reducing the complexity and challenges of version control of exchanging multiple drafts. And digital signatures enabled by the technology can also bring substantial benefits.
The potential applications extend to Government, in the way in which it manages and shares personal data mindful of sensitivities around data security and confidentiality. It can also enable governments to pay benefits, collect taxes, issue personal identification such as passports and drivers licences, record property transactions and titles. And this can be done in a way in which individual citizens can control access to their records and can see who has accessed them.
The potential for innovation is being increased through the availability of open source software, collaborations such as the Hyperledger project to create common standards and governance structures, and with the likes of IBM contributing code.
So why is this relevant to cities?
Why are we interested in all this here in Leeds?
First it creates opportunities and threats to places, such as Leeds, with strong financial services sectors. Threats because, like all disruptive technologies, it could automate existing labour intensive back office functions. But it also provides opportunities for innovation, investment and start-ups. In Leeds, we have a strong track record in innovation in financial services, from the building societies to the creation of the world’s first ever telephone bank, firstdirect. Combine this with a strong digital sector, with particular expertise in data analytics, cybersecurity, online gaming, and the UK’s only internet exchange independent of London, we believe we have the ingredients to exploit the opportunities from distributed ledger technologies. And with Innovate UK looking to support commercialisation of this technology, we are looking at what we can do to support blockchain innovation and investment in Leeds.
Transforming public services
Second, the potential applications for Government could transform the way in which local bodies deliver services, share and analyse information, and engage with citizens. Leeds has particular expertise in health data science (we have more health informaticians than any city in the world). We have led the way in creating the Leeds Care Record, a single patient record across the NHS health and local authority funded social care systems. This enables more integrated care and interventions for people. But applications such as this are fraught with concerns about confidentiality. In short, people want to know who can update and who can look at their records. And this is where the technology has real strengths in terms of its security; a user needs a unique key to access their records, and knows who has accessed their information. And because the databases are distributed and secure, they can be less vulnerable to cyber attacks than traditional systems.
Baltics and tailless cats
Third, we are looking to new trade partners to make the most of this technology. Links to London, which is indisputably the world’s leading fintech centre, are hugely important for places such as Leeds. But we are also looking elsewhere. Some of the most innovative firms in this area were not created in London, New York or Silicon Valley, but in the Nordics and Baltics. And closer to home, whilst perhaps better known for the TT races and the Manx cats without tails than as a fintech hub, the Isle of Man is aiming to grow a leading blockchain hub. It is doing this through Government leadership, intelligent regulation (and no doubt its low tax regime). And with already over 25 Manx blockchain startups, they are doing so with some success. For firms with expertise in distributed ledger technologies looking to enter the UK market, of course London will be a huge magnet, but places like Leeds which are easier to navigate, with a lower cost base, excellent talent, and the right ecosystem could also be attractive.
Watch this space!
“It’s just a database…..nobody’s running it because everyone’s running it”
The final word goes to Chad Cascarilla who cuts through the complexity and sums up what this technology is and why it could be so disruptive:
“It’s just a database — that’s all it is. It’s easy to lose track of it amongst the buzzwords. But it was a big innovation in databasing because it’s fully distributed. A normal database, someone’s actually running it. On the blockchain, nobody’s running it because everybody’s running it. From that perspective, that’s a real big shift. That’s actually hard to underestimate”