IBM Senior Vice President: How blockchain technology will change business and society

The author of this article, Arvind Krishna, is Senior Vice President of IBM and Director of IBM Research.

The Linux operating system originated from a flash of inspiration for Finnish university student Linus Torvalds, who was simply looking for a better way to connect his new personal computer to the school's computer system. Now it is one of the pillars of the 21st century economy. Linux is a testament to the power of open source software to change the world.

The Linux Foundation, a nonprofit organization that supports mass innovation through open source, has begun a new initiative that could follow a similar trajectory to the Linux operating system, announcing an open source project to realize the vast potential of blockchain.

Blockchain is a technology for a new generation of transactional applications that can establish trust, accountability, and transparency while streamlining business processes. We can think of it as an interactive operating system. It has the potential to significantly reduce the cost and complexity of getting work done.

It is very important to follow the open source model to develop blockchain technology so that a sufficient number of organizations can use this technology to maximize its benefits. Because of the existence of open source rules, participants can trust that the technology can meet their needs and comply with industry standards, which can ensure interoperability between different blockchain applications. Moreover, because the basic platform is shared by everyone, participants can focus on developing industry-oriented applications, platforms, and hardware systems to support transaction processing.

We believe that blockchain technology is best served by finding ways to bring the tech industry, government, and business communities together around a common open source blockchain infrastructure that is developed and managed in a transparent, collaborative environment. We also believe that organizations will be best served if they can use industry- or feature-specific extensions of blockchain technology that are created and managed based on the same principles.

To that end, we support the Linux Foundation’s Open Ledger Project, which also includes Accenture, ANZ Bank, Cisco, Credits, Deutsche Börse, Digital Asset Holdings, DTCC, Fujitsu, IC3, Intel, JP Morgan, London Stock Exchange Group, Mitsubishi UFJ Financial Group, R3, State Street, SWIFT, VMware, and Wells Fargo.

In addition to participating in the alliance, we are also developing an enterprise-grade blockchain software fabric, which is the term the technology industry has chosen to describe this new and exotic architecture. We plan to contribute that fabric and the intellectual property associated with it to this new project. At the same time, IBM is helping clients explore what blockchain can do for them and is developing commercial products that serve specific areas or span different industries.

Blockchain, the main component of the cryptocurrency Bitcoin, began to be developed several years ago, but it has since been discovered that the technology can be used any time a valuable asset is transferred from one party to another.

Essentially, a blockchain is a distributed ledger shared across a peer-to-peer network. Each participant has a copy of the ledger data, and additions or changes to the chain are propagated across the network, but only with the consent of all parties involved in the transaction. This approach exempts participants from a lot of review and verification procedures, reducing the cost and time required to complete transactions.

Blockchain will have many uses in business and society. Banks, investment banks, financial markets and insurance companies are pioneers in exploring the possibilities of blockchain, but the potential applications of blockchain extend far beyond the financial services industry.

One of the more attractive blockchain applications is supply chain management, which is relevant to nearly every business and government agency.

Executives responsible for organizing supply chains must manage relationships with many direct suppliers of goods, while also understanding what is happening between those suppliers and their suppliers. Not only do they handle financial transactions, they also plan and manage every step in the process of bringing a product or service to market. Today, all of these independent yet interrelated interactions incur significant management costs, including time delays, cascading costs, and the potential for errors.

Now, imagine the supply chain after applying blockchain. For example, an aircraft manufacturer might create a blockchain-based system to comprehensively manage all its relationships with parts suppliers. All suppliers will share the same information about the new aircraft model, that is, sharing every step in the planning, design, assembly, delivery and maintenance process. At the same time, the manufacturer will use other blockchain-based systems to manage financial relationships and financial transactions about each step.

Blockchain is the key to building trust and accountability in the supply chain. It is also the key to building compliance with government regulations and internal rules and processes in the supply chain. This not only reduces costs, delays, improves quality, but also reduces risks.

Over the past two decades, the Internet has revolutionized many aspects of business and society, helping individuals and organizations become more productive. However, the fundamental ways in which people and organizations transact with each other have not changed since the dawn of the 21st century.

Blockchain will be able to bring to these processes the openness and efficiency we expect in the internet age.

The recent declaration is an important first step towards achieving this broad vision.