Will origin information become a new explosion point for blockchain in 2016?

Gideon Greenspan is a Tel Aviv-based developer, entrepreneur, and lecturer. He is also the creator and CEO of Coin Sciences, the company behind the MultiChain platform, a private blockchain. Maya Zehavi is the head of business development at Coin Sciences and the co-founder and COO of TRST.im.

     Here, Greenspan and Zehavi discuss how provenance information, or ownership, is emerging as one of the most popular use cases for companies experimenting with blockchain technology and may become the industry’s “killer app.”

     2015 was the year that financial institutions embraced blockchain technology, but as we move past the hype and inevitable decline, today it’s best to focus on the work that blockchain technology can actually enable.

     One of the main reasons why blockchain technology is attractive to businesses is the concept of a value network, in which parties can transfer assets in custody in an auditable manner without relying on intermediaries.

     The recognition that these assets don’t necessarily have to be currencies, they can be any kind of financial instrument, also opens up new possibilities for innovation.

     However, the technology it represents today still has some limitations that have yet to be resolved. The privacy of the blockchain is perhaps the biggest barrier to adoption, as every transaction on the blockchain is visible to users by default.

     Other issues regarding regulation and legal definitions need to be resolved, so it will take some time before full development of use cases is possible.

Common features

     In 2015, we saw most proof-of-concept use cases focus on post-trade settlement, trade finance, payments and remittances. What they all have in common is that these business processes all utilize blockchain as the origin protocol.

     A lot has been said about blockchain as an ownership layer. But what does it mean, exactly?

     What this means is that the blockchain represents ownership of data control over an asset. In other words, only the current owner can verify a transaction that transfers an asset to another owner.

     This is provenance in the form of an agreement. The word "provenance" is derived from the French "provenir" and is used to describe the chronology of custody of an object.

     Provenance information is one of the backbones of the economy, whether it involves cultural relics or real estate. The actual ownership of an asset by one party needs to be proven before any business dealings can take place, to ensure that the asset is “real” and not stolen or forged.

     In the past, this role has been played by a trusted third party.

     But now, blockchain can simplify this function by serving as an infrastructure for registering and certifying ownership of assets of common interest between untrusted parties and all parties.

     However, this is not to say that blockchain can eliminate all intermediaries in the financial system. For example, even in a fully blockchain world, some people may find that their tokens are trading on behalf of currencies, providing anonymity services, or acting as blockchain administrators.

     Time will tell if and how existing financial players will adapt to these roles.

Tracking ownership

     Regardless of how the traditional financial industry plays out, the past year has made it clear that blockchain tracking of ownership has been one of the most immediately viable applications.

     Even within the Bitcoin blockchain, we’ve seen a number of startups focused solely on provenance, such as Everledger, Colu, Ascribe , and Monegraph, gain significant traction.

     If we dismantle the business processes of trade finance, we will see a lot of shared documents related to management and processing between uncredited parties.

     The same can be said for post-trade settlement and collateral management, where “smart contracts” are already being used, often acting as computer instructions to formally initiate and control changes.

     If we consider the future development of the financial industry, blockchain can also manage data in a broader sense, providing a complete audit trail of data provenance. Therefore, blockchain can act as a data provenance protocol for organizations that do not fully trust each other.

Future progress

     Over the past year, we’ve even been able to see an interest within enterprises in using blockchains, as they serve as highly reliable and resilient distributed databases with the added bonus of an indisputable internal audit trail.

     As blockchain technology matures, more properties involving provenance information will be introduced.

     Today, we already have permissioned blockchains, where the ability to connect, issue, send and receive assets, confirm transactions and manage the blockchain is clearly allocated from one party to another.

    In the future, there will be more assets on the blockchain to verify and track not only their origins, but also how specific entities are allowed to hold and interact with these assets. In addition, these assets will be distributed through specific channels.

     As a decentralized ledger technology, the ‘killer app’ for blockchain technology is likely to be a genesis protocol that can regulate different types of entities as they are created, shared and used by multiple participants.