Project Management Institute

Blockchain's Buildout

A New Technology Could Revolutionize How Money and Information Move Online

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In an age of cyberinsecurity, organizations are scrambling for peace of mind. Blockchain, a technology best known for recording transactions involving digital currencies such as bitcoin, is being hailed as the future of online security. When applied to the world of conventional finance, manufacturing, healthcare and other sectors, blockchain technology helps with executing contracts, record-keeping, data verification and tracking digital assets. (While blockchain isn't rocket science, it's not exactly arithmetic, either. See “Blockchain Basics” on next page.)

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“What you see is a range of small projects—experiments or proofs of concept. The most promising ones are continued.”

—G-J van Rooyen, Custos Media Technologies, Stellenbosch, South Africa

“The internet fundamentally changed the role of large media companies in society and the way governments could monopolize information. In the same way, blockchain will change the way governments and other institutions act as registrars of ownership,” says G-J van Rooyen, PhD, co-founder of Custos Media Technologies, Stellenbosch, South Africa. His company uses blockchain to catch online piracy on behalf of film studios and publishers.

Right now, banks and payment-processing organizations legitimize and secure transactions. Blockchain could enable merchants and consumers to conduct financial transactions without a third party slowing the process. That capability could challenge the core business model of many financial organizations.

As organizations try to leverage blockchain's transformative potential, serious project investments are already underway—especially in the financial industry. A 2016 IBM global survey found that 15 percent of banks plan to have commercial blockchain operations by 2018, while an additional 51 percent of institutions are expected to roll out blockchain programs by the end of 2020.

But change won't happen overnight, particularly in a highly regulated field like banking and securities, says Ewout Huizingh, project manager, ABN AMRO Clearing Bank, Amsterdam, the Netherlands. “Central securities depositories aren't going to be dissolved into thin air in the near future.”

Keeping up with the evolving regulatory environment is a major challenge with blockchain projects, says Mr. Huizingh. ABN AMRO mitigates the risk of noncompliance by maintaining constant communication with regulators at both the national and international levels. It's not just a financial sector challenge, though. Keeping regulators aware of what blockchain can and can't do is vital for Dr. van Rooyen's company, too.

“A poor understanding of the potential risks of blockchain technologies could lead to overly restrictive regulation that increases the cost of compliance to the point where we can no longer operate,” Dr. van Rooyen says. “So the cost of compliance is an identified risk, and stakeholder engagement is the primary form of risk mitigation.”

Work in Progress
In this uncertain climate, project teams at established organizations are racing to understand and master blockchain technology before competitors and scrappy startups do. “There are so many blockchain initiatives going on,” says Mr. Huizingh. “Even the largest institutions have to choose what to focus resources on. What you see is organizations working on a range of smaller projects—experiments or proofs of concept. Based on learnings from them, the most promising ones are continued into larger projects.”

He's overseeing one of ABN AMRO's five blockchain projects, all of which are in early stages. To expedite execution, the teams have created proof-of-concept software program prototypes built in part through leveraging expertise from the open-source community.

Another major risk for project managers is scalability, Dr. van Rooyen says. Bitcoin limits the size of blockchain transactions that can be processed in a given time period (though the limits could change). Projects using an encrypted currency will need to either build their own systems that can sidestep transaction limitations or adhere to Custos' approach of designing a system that can move from one digital currency to another.

“Bitcoin is the original cryptocurrency, and it's proven to be very resilient. But it might turn out that an alternative cryptocurrency emerges as the market lead,” Dr. van Rooyen says.

Until blockchain's role in the financial sector and beyond becomes more established, project teams will continue to experiment with the best ways to use the technology while watching how competitors proceed, says Mr. Huizingh.

“Everybody is afraid that somebody else will have the golden idea that will change the world.” —Christina Couch

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Blockchain Basics

Here's blockchain in a nutshell: Information is lumped together (in blocks) and put in a chronological order (a chain). Voila, blockchain. All of this information is stored in an encrypted and decentralized ledger. Because each piece of information relies on the chain, changing one piece of information would alter the network. Since this ledger can be viewed by anyone with access, the validity of every transaction can be verified by all users in the network. So if someone tries to hack into the system, users can recognize the invalid action.

But blockchain is not just a way to block hackers. What makes it really revolutionary—and why financial institutions are so keen on it—is that it enables people to send money (or other information) directly to one another without a third party. For a financial transaction typically involving a bank, blockchain would eliminate the hours or even days it takes for the bank to verify the transaction and the fees a bank might charge. When third-party systems aren't doing the validating, entire industries can speed up. And greater security can bolster record-keeping—everything from voting to patient medical histories.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

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