Why IBM CEO Ginni Rometty Believes in Blockchain

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IBM Blockchain

Close attention has been paid in the wake of Donald Trump’s historic victory in the US presidential election to bitcoin, which rose on safe-haven demand in reaction to Trump’s victory and uncertainty in global markets also related to Brexit’s looming impact.

“There is the very real prospect of turmoil on world markets,” Coin Telegraph commented. “Bitcoin would thrive in such an environment, at least until the impact on major fiat currencies becomes clear.”

While the world watches bitcoin, it’s blockchain — the technology that powers bitcoin — that is exciting companies and CEOs such as IBM CEO Ginni Rometty.

As Rometty stated in in a keynote address on Monday at the FinTech Ideas Festival in San Francisco, while yes, she’s excited about the growth of IBM’s cognitive business and AI leadership with Watson—it’s also the impact of blockchain on the present and future of finance and business that’s fostering innovation and opportunities for her company and clients.

Blockchain, a digital ledger that records transactions in Bitcoin and other cryptocurrencies, is relevant whether you’re working in private equity placements or diamonds, Rometty told the audience.

That’s why IBM is a member of the Hyperledger Project to advance blockchain technology as an enterprise-class, cross-industry open standard for distributed ledgers that can transform the way business transactions are conducted globally.

IBM BlockchainIn October, IBM hosted a hackathon in New York inviting startups to brainstorm ideas around blockchain, which the company already uses to track $40 billion in financing and for foreign exchange dispute management, as Rometty told the FinTech Ideas festival. It’s for “anywhere you’re trading some set of assets and need to be sure about the authenticity,” Rometty said.

In another example of how IBM is using blockchain, it also just announced that it’s partnering with The Seam, a commodity trading and management systems company, to create a cotton industry consortium devoted to the creation of a blockchain-based “supply chain and trading ecosystem.” The effort will make use of IBM’s blockchain technology and expertise, and will use IBM’s Hyperledger Fabric in an industry-first.

Big Blue is also working with major retailers and shippers to implement blockchain throughout global logistics systems supply chains. “The flow of money is what flows through all of this,” she told the FinTech Ideas Festival.

Rometty followed up with a CNBC interview on Monday in which she reiterated her belief in the power of blockchain:

I think for a number of these technologies this is going to be a tipping point—chapter one is over and you’re going to see serious business done with these. I take something like blockchain, what at the end of last year we had announced CLS, which does all of the FX (foreign exchange) settlement, 5 trillion a day, building with IBM on Hyperledger, which is again an open-source blockchain, to move that process there.

If that didn’t make much sense to you, you’re not alone—there’s still some confusion about blockchain and why companies should pay close attention to how it works, and how it might transform their businesses. Here’s a primer.

Understanding Blockchain

Wired UK defines blockchain as “a decentralised electronic ledger with duplicate copies on thousands of computers around the world. It cannot be altered retrospectively, allowing asset ownership and transfer to be recorded without external verification.”

Harvard Business Review also explains that “it’s the first native digital medium for value, just as the internet was the first native digital medium for information.”

It’s also rapidly growing as a market. PricewaterhouseCoopers (PwC) reports that during the last nine months of 2016, $1.4 billion was invested worldwide in blockchain startups. PwC executive Seamus Cushley, who oversees a 25-strong blockchain research lab, said that medical records, land registry holdings, digital identity and even diamonds are being sold on the blockchain.

Cushley said that “when it comes to actual production, nothing at scale has happened yet as the banks are still investigating how they can best employ the technology.” He added it will only be a matter of time before banks jump on board more fully.

Banks Eye Blockchain

Blockchain is attracting a lot of attention from banks and financial institutions—along with startups eager to capitalize on what it offers. Case in point: Chain, a two-year-old start-up that’s acing to help banks build “permissioned” blockchain systems.

Initially, Chain partnered with bank collaborators such as Visa, Nasdaq , Fidelity, Capital One and Citigroup . Now the company is releasing an open-source version of its Chain Core software to developers, enabling anyone to make tweaks, apps and bespoke networks on top of the software.

“We want to transition the blockchain narrative from the PowerPoint presentation to the prototype,” said Chain founder and CEO Adam Ludwin to Fortune. “Now, any development team working anywhere in the world have access to download and freely install our platform, freely start a network, or connect into a network.”

Rometty has been a blockchain booster in corporate America, calling for a system of transparent governance for blockchain in a Wall Street Journal op-ed column that argued that “Few predicted the profound effect it would have on society. Today, blockchain—the technology behind the digital currency bitcoin—might seem like a trinket for computer geeks. But once widely adopted, it will transform the world.”

That’s why IBM has joined more than 600 firms in the Linux Foundation’s Hyperledger, an open source collaborative effort to advance cross-industry blockchain technologies. IBM estimates applying blockchain to global supply chains could result in more than $100 billion in annual efficiencies but needs governance from not-for-profit groups similar to the way the internet was developed in the 1990s.

As the world’s largest financial services companies grapple with aging technology and computer systems—on average two decades old and straining under the still-nascent data deluge—blockchain offers a promising way to create structure and share a digital ledger of data among a network of companies without need for a centralized manager.

The need is real. As the Inspector General of the US Internal Revenue Service commented in a report challenging the US tax agency’s efforts and ability to oversee and tax digital currency transactions:

“The IRS needs to ensure that it develops a strategic plan that includes management oversight as well as adequate internal controls for its virtual currency programs. Until a comprehensive virtual currency strategy is developed, the IRS is open to the risk that undetected noncompliance of virtual currency taxable transactions will result in an increase to the Tax Gap.”

Don Tapscott explained more about how blockchain works in a hugely popular TED Talk last August:

“So for the first time now in human history, people everywhere can trust each other and transact peer to peer. And trust is established, not by some big institution, but by collaboration, by cryptography and by some clever code. And because trust is native to the technology, I call this, ‘The Trust Protocol.’ 

Assets—digital assets like money to music and everything in between—are not stored in a central place, but they’re distributed across a global ledger, using the highest level of cryptography. And when a transaction is conducted, it’s posted globally, across millions and millions of computers. And out there, around the world, is a group of people called ‘miners.’

These are not young people (minors), they’re Bitcoin miners. They have massive computing power at their fingertips—10 to 100 times bigger than all of Google worldwide. These miners do a lot of work. And every 10 minutes, kind of like the heartbeat of a network, a block gets created that has all the transactions from the previous 10 minutes.”

Below, Alex Tapscott (Don’s son), as author of the bestselling Blockchain Revolution, shares in his TED talk last October how the blockchain technology behind bitcoin is changing money, business and the world:

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