Are you ready for blockchain?

For all of the excitement that exists around blockchain, there is a lingering stigma. In large part, this is due to the initial association of the digital currency bitcoin with the black-market website known as Silk Road. Starting in 2011, drug dealers began taking payment in bitcoin for sales made on the site, leading to a major FBI investigation and the eventual shutdown of the site in 2013.

Taking advantage of what they perceived to be digital anonymity when using bitcoin, combined with some sophisticated money-laundering techniques, Silk Road generated revenue worth more than 9.5 million bitcoins, which translated to about $1.3 billion in 2013 valuations.

On the surface, some skepticism about the technology following the Silk Road case was justified. The idea of a criminal network of drug dealers transacting business on the dark web with a digital currency that’s mined by high-speed computer processing in a sort of digital alchemy that few people really understand sounds sort of scary.

Digging deeper, however, it becomes clear that the same immutability of the underlying ledger that makes blockchain so attractive to contract lawyers and financial clearinghouses, also made it relatively easy to catch the bad guys in the Silk Road case. Ultimately, the ledger detailed all of the illicit transactions, allowing prosecutors to put the 30-year-old mastermind of the Silk Road empire, Ross Ulbricht, in jail for life.

After reviewing all of the case materials, prosecutors concluded it actually would have been easier for the Silk Road criminals to conceal their assets in the traditional financial system.

Ironically, because of all of this, the technology that came to the mainstream consciousness in a flurry of stories about cybercriminals may actually create a new model for trust in the global financial system.

Cryptocurrencies have succeeded without the backing of a central bank to ensure the safe management of currency as a store of value. Instead, users of cryptocurrencies trust in the transparent and permanent record of transactions stored by every user on the blockchain. Trust is not dependent on one central authority; it is federated between all users, while, on some level, that may be scary for some who will need to cede control of proprietary systems of checks and balances in favor of an open, transparent approach.

The implications will be far-reaching. Beyond having an immediate financial impact on many institutions who’ve been charged with auditing, assigning identification tags, and processing the contracts, financial instruments, and documents that can now all be tracked on blockchain, the mere existence of this record fundamentally changes our foundations of trust.

Reflecting on the 10 years since the credit crunch and subsequent global financial crisis, David Craig explains:

Instead of putting our trust solely in the hands of traditional institutions, we’ll be putting our trust in a federated network of digital fingerprints that’s keeping an ongoing record of everything. Of course, the safekeeping of that digital record will be critical to this new trust foundation, and will introduce an entirely new world of digital security requirements.

With new blockchain initiatives launching pretty much daily, the path ahead is anything but certain, but the implications of the technology on many of the fundamental underpinnings of our business and legal structures are already starting to become clear.

Due in part to its roots as the backbone of a digital currency, blockchain is furthest along on the development curve in the financial services industry. Most of the attention on the technology has been focused on using the technology to streamline back-office processes such as trade processing, clearing, and settlement.

This potential led the Bank of England to suggest in a 2014 white paper that blockchain could become the “Internet of finance.” The bank explained:

“With conventional bank deposits, banks hold the digital record and are trusted to ensure its validity. With digital currencies, by contrast, the ledger containing the record of all transactions by all users is publicly available to all. Rather than requiring users to have trust in special institutions, reliance is placed on the network and the rules established to reliably change the ledger.”

What that means is that blockchain can remove the need for transaction intermediaries there to create trust between participants because the technology itself establishes the trust, while at the same time, creating a pure, digital record that exists independent of any single institution and cannot be tampered with or exploited in any way.

That’s a big deal.

In one fell swoop, by taking all of the third parties and proprietary processes out of the equation, blockchain addresses everything from anti-money laundering and corporate transparency issues to seamless trade identification and reporting in a single, elegant package.

Ultimately, what’s unfolding here is a rapid maturation of the blockchain ecosystem as financial firms begin to bring together all of the checks and balances required to comply with current regulatory and administrative requirements, while making the transition to distributed ledger technology.

Financial professionals were initially more interested in the ledger technology underlying cryptocurrency, than the currency itself. That all started to change this year as a cryptocurrency gold rush has made bitcoin the hottest financial asset of 2017.

And, while mainstream institutional investors have largely stayed clear of the nascent market, there are financial leaders pushing for continued exploration of FinTech in the global financial community. Consider IMF’s Christine Lagarde’s comments on virtual currencies in her remarks at the Bank of England’s conference at the end of September 2017:

So just how valuable are cryptocurrencies? The below graphics show the top cryptocurrencies by market capitalization, and compares them to several country GDPs and various cultural financial powerhouses.

According to Coinschedule, new cryptocurrency offerings – which are called initial coin offerings, or ICOs – have raised more than $3.4 billion this year, and the price of bitcoin has risen from about $910 in January 2017 to over $17,000 in December 2017, catching the eye of mainstream investors and financial markets professionals alike.

There’s even talk of new bitcoin ETFs being offered to mainstream consumers, following the U.S. Commodity Futures Trading Commission (CFTC) order granting LedgerX registration as a derivatives clearing organization. The move allows the company to start offering options on bitcoin to institutional investors this year, making it the first federally regulated bitcoin options exchange. Those watching these developments closely anticipate that the institutional uptake of cryptocurrency trading on regulated platforms could pave the way for consumer ETFs offering cryptocurrencies in the near future.

Amid all of this activity, wealth management professionals are already fielding calls from clients asking why they are not recommending cryptocurrencies as part of their portfolios. In fact, the Swiss private bank Falcon has begun offering clients the ability to store and trade bitcoin with their cash holdings.

Cryptocurrencies around the world

Where the story of cryptocurrencies becomes even more interesting and complex, however, is how cryptocurrencies are treated and recognized around the world.

The above data visualization shows governmental attitudes toward cryptocurrencies, not limited to bitcoin alone. The picture produced across the world is patchy. Some countries have become global advocates, while others have actively banned cryptocurrencies completely, with various shades in between.

The most notable disrupter is Japan, which has passed a law accepting bitcoin as legal tender. At the other end of the spectrum, Bangladesh passed a law in 2014 stating that anybody caught using the virtual currency could be jailed under the country’s strict anti-money-laundering laws.

All of this is still version 1.0 of the burgeoning cryptocurrency revolution, and the lay of the land will certainly change considerably over the next several months, but the pieces are all coming together to support a very robust infrastructure for blockchain and related cryptocurrencies to get the institutional – and eventually mainstream – credibility they need to continue growing.

It’s not just the financial services industry that’s being disrupted by blockchain. In fact, the potential in the tax and accounting and legal industries may be even more disruptive than what we’ve seen taking shape in finance.

It all goes back to the role of blockchain as a decentralized digital platform for recording and verifying transactions. Think about the potential for a technology like that in the world of land registry for tax identification and collection purposes.

Currently, when you buy a house in the United States, you enter into an archaic system of paperwork and bureaucratic red tape that typically takes anywhere from 60 to 90 days to resolve. Title searches need to be conducted, surveys need to be vetted, tax records need to be verified, and financing documents need to be passed around to a ragtag array of lawyers, realtors, government authorities, lenders, and the parties to the sale.

That’s all before the transaction occurs and the records can be filed and monitored for ongoing property taxation. And that’s in the developed world, where – for the most part – property lines are clearly marked and records of ownership have been meticulously documented and stored for years. In the developing world, where many records of land ownership have either been destroyed by civil unrest, distorted by corrupt government officials, or simply never existed, the challenge is even more serious.

Blockchain has the power to fix all of that by creating a consistent, immutable record that cannot be distorted.

Sweden’s land registry authority, Lantmäteriet, has already begun testing blockchain for this very purpose by implementing a pilot program earlier this year for recording property transactions. The successful program allowed copies of records held by the land registry and all other parties to the transaction, such as banks and real estate agents, and each step of the property purchase process to be verified and recorded on blockchain for all parties to see. In their assessment of the pilot program, Lantmäteriet said they believe using blockchain will cut the time taken for writing a purchasing contract through to registering a property title from four months to a few days.

Similarly, Luxembourg has begun developing a blockchain-based identity platform that will be used in everything from tax filing to regulatory enforcement.

With far-reaching implications that cut across tax, legal, financial, technology, and operations functions, blockchain is well on its way to becoming a serious disrupter in every industry. The sooner corporations get on board, the better position they will be in to exploit the technology to streamline their operations.

It’s tempting to focus on a handful of blockchain use cases and compartmentalize the technology as a nifty piece of back-office technology that will help improve record keeping and streamline contract processing, but not necessarily change the world. Taken as a whole, however, the technology is bigger than that.

In virtually every industry around the world, blockchain is disintermediating traditional supply chains and, in turn, upending decades-old regulatory structures that have been built around a certain way of doing business.

The question for many businesses confronting this reality is:

Join the blockchain ecosystem

At Thomson Reuters, we have developed an ecosystem of blockchain partnership with hundreds of entrepreneurs and start-ups as well as with key industry organizations. We build blockchain applications and experiment with them.

Hack your way in

We host blockchain hackathons to explore blockchain’s potential to disrupt and transform industries. We have invested, alongside the best venture and strategic investors, in start-ups that demonstrate transformational ideas with solid business models. This sets us apart and opens the door to more opportunities and partnerships.

Use an open foundation

We also have an open platform approach, whereby we allow our data, analytics, and insights to be integrated easily with third-party applications, flexible APIs that are interoperable with those of other trusted providers, and ongoing collaboration with industry partners, academia, and our customers to break down the silos that have kept these functions separated for so long.

Build on BlockOne

That’s the thinking behind our launch of the BlockOne IQ and BlockOne ID tool kits to foster co-innovation and enable our clients and partners to experiment with new approaches to implementing blockchain technology into their existing workflows.

Significant challenges still exist on the way to full-scale adoption of blockchain, but the progress made thus far will only be amplified as incremental milestones are achieved, and that’s where the hype will start to become reality.

Will you be ready?