Finance in Focus: How a blockchain economy can mitigate fraud
Big data was once a big buzzword in the technology sector. Now, blockchain is the term that is filling social streams. Apparently, blockchain is a huge deal for all industries, particularly the financial industry. In this Finance in Focus podcast, hear from Alex Tapscott, coauthor of the recent book, Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World (Portfolio, May 2016).
Tapscott built his expertise in the financial services industry and was asked to join a multimillion dollar research project that his father and coauthor, Don Tapscott, was running with the University of Toronto. The project looked at new forms of global problem solving, and it needed a financial expert on the team. Among the first areas the team began to explore within the project were the bitcoin and crypto currencies, and that exploration led to looking at how blockchain, the underlying technology, could transform corporations, financial services, governments and other areas. The resulting paper became the basis of the Tapscotts’ book.
According to Alex Tapscott, blockchain needs to be demystified. Imagine a vast, global ledger that basically serves as a giant database stored on every computer, by everyone. On this ledger, anyone anywhere, can move, store and manage anything of value—not just money, but deeds, intellectual property, stocks and bonds, titles and even votes. Blockchain represents a new digital medium of value.
And in addition to demystifying blockchain, we need to understand that the current infrastructure is an Internet of information. What is needed now for a blockchain economy, however, is an Internet of value.
Data is prone to attacks in part because it is centralized in large computers, and centralized storage can make many firms vulnerable to attacks as well. Attacks are costly, and they slow things down. A lot of that costly disruption has to do with the infrastructure upon which the Internet is built. And reliance on intermediaries such as banks, credit card processing systems, clearing houses, merchants and other third parties increases the number of weak points prone to attack.
A distributed ledger not only avoids the vulnerability of centralized storage, but it also enables auditing and financial reporting to be carried out in real time. Moreover, auditing and reporting are responsive and transparent and can dramatically enhance the capacity of regulators to scrutinize financial actions within a corporation. These days, when people are stealing money, they’re not taking it from a Brinks truck. They’re moving ones and zeros on a spreadsheet. Blockchain provides an environment in which hackers can’t move numbers in spreadsheets or software. To perpetrate fraud, they’d have to go into the block and hack every single other block going back to the beginning of time.
Shifting a paradigm
Blockchain has allowed the technological genie to be released from the bottle, and this result represents a huge paradigm shift. Whenever you have a new paradigm, people generally approach it with reservation. In the past, people sometimes ridiculed technology shifts, and many organizations were slower than others to embrace them. As a result, many of those organizations are no longer in business. However, these days business leaders are accustomed to the rapid way technology changes.
Nevertheless, firms need to decide now if they're going to disrupt within, or wait to be disrupted from the outside. The rate of change is so great that businesses are standing on a burning platform, and the cost of standing still can actually be greater than staying put.
Taking blockchain cognitive
Blockchain offers a raw, powerful technology that needs applications and services to make using it easy. This need opens up a big opportunity for cognitive computing. One example includes the combination of blockchain-based smart contracts and autonomous agents with artificial intelligence that results in software capable of mimicking the logic of contracts to empower individuals to do more.
Regulations, cybercrimes and fraud are continuously increasing, and they inhibit business growth. To keep up with regulations, companies increase compliance staff and budgets. In addition, data breaches and other security incidents are more common and costly than ever. Companies need to effectively address both security threats and compliance requirements, so they can direct resources toward driving innovation.
Learning more about blockchain and cognitive computing
Companies that choose to “disrupt from the inside,” as Tapscott puts it, have a need for a whole new blockchain economy that behooves leaders to create, implement and maintain a blockchain strategy. In concert with that need are cognitive applications that can understand the massive amount of data compiled to intercept fraud before it occurs. Don't miss hearing Tapscott in this Finance in Focus installment.
Alex Tapscott is founder and CEO of Northwest Passage Ventures and is a globally recognized thought leader, advocate, speaker and writer focused on the impact of emerging technologies on business, society and government. Tapscott is coauthor of the critically acclaimed, number-one Globe and Mail nonfiction bestseller, Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World (Portfolio, May 2016). He is also author of dozens of articles featured in publications such as Forbes, Fortune, Harvard Business Review, McKinsey Quarterly, Quartz, The Globe and Mail, The Huffington Post, Time, and Toronto Star. Tapscott is a passionate and vocal advocate for innovation, entrepreneurship and civic engagement.
Susan Visser is a social strategist for the finance services sector and works in IBM performance marketing and analytics.
In addition, attend IBM Insight at World of Watson 2016 to see how business leaders in industries such as education, finance, healthcare, insurance and retail are moving beyond simply being a digital business to one that infuses digital intelligence and enables them to outthink fraud.