Most people tend to immediately switch off when they hear the word “blockchain”, but it’s an incredibly simple concept that could mean the end of thousands of jobs in South Africa’s banking, auditing, insurance and legal sectors.
Speaking at a Norton Rose Fulbright event on Wednesday evening, Tanya Knowles, managing executive of Fractal solutions at Strate, gave a live demonstration of how a South African business can use blockchain technology.
Strate is South Africa’s Central Securities Depository, and is licensed to be an independent provider of post-trade products and services for the financial markets.
In essence, alongside a number of other duties, Strate is responsible for tracking and reflecting all transactions on South Africa’s four stock exchanges.
Fractal is a subsidiary created by Strate to investigate new technology, and was created due to increasing fears that a company such as Strate may no longer be required as an “intermediary” as blockchain technology becomes more popular.
What is a blockchain?
As Knowles explains, a blockchain can be described as a large, digital accounting ledger, which is duplicated thousands of times across a network of computers and is designed to regularly update based on new transactions.
The technology is near “unhackable” because a ‘fake’ transaction would require a forced change of this ledger on each of the individual computers – whereas legitimate transactions are near instantaneous and reflect worldwide.
While the blockchain started life as a means of tracking Bitcoin and other cryptocurrencies, Knowles said it is now finding mass use in business – with a trial-run being implemented for JSE transactions, as well as new efforts to begin recording the world’s diamonds using a blockchain, as some examples of some of the newest uses.
Using a regulated, permissioned blockchain demonstration created for the event, Knowles and her team at Strate gave a hands-on example of how a blockchain could be used by a company and the business world.
To begin with, each attendee was given login details to access the application on their smartphone.
Once logged in, the scenario is simply that of buying and trading shares as a member of a stock-listed company. Each attendee was given a number of “CryptoRands” as well as fake assets to trade with one another.
Attendees could then select one of the members on the list to offer to trade with and could then offer to buy or sell their assets for any amount that they wanted.
While buying and selling shares on the JSE can take up to three days to reflect, buying and selling on this blockchain would take less than 10 minutes. In addition there is no need for any intermediaries or formalities because of the secure nature of the blockchain.
The app also had a built-in meeting system tying into the idea of owning shares in stock market listed company. Effectively this could be used to replace the current arduous AGM voting process used by companies and allow for shareholders to vote on business motions almost immediately.
This demonstrates the same transfer of secure data, but instead of sending financial transactions in the form of buying shares, the secure data is votes in a company meeting.
Why big business is worried (and excited)
While the above example is primarily finance-focused, it’s important to note that blockchain technology can, in theory, be used to transfer and send any data. Examples provided include banking transactions, insurer information as well as confidential client information in law firms.
As highlighted by Bankymoon’s Loerien Gamaroff, you are essentially removing the middle-man from all your transactions.
For auditors and certain accountants, its secure nature has also threatened to make their positions redundant, as all blockchain transactions are easily accessible, traceable and legitimate.
However it’s not all doom and gloom. A number of large auditors such as KPMG and Ernst and Young have (like Strate) transitioned from an intermediary auditor role to that of an advisory role, providing businesses with the expertise and know-how to use this technology.
The recent announcement that the SARB will begin regulating cryptocurrency and blockchain technology has also been met with open arms.
As highlighted by senior associate at Norton Rose, Kerry Crawford, while big businesses have begun to embrace the technology, there has been great reluctance to fully jump in because of the lack of governing laws surrounding the technology.
Despite a number of legal minds discussing the topic around the world, currently there is no way to decide who would be responsible should a transaction go wrong; whether all transactions should be allowed using a blockchain; and whether our current financial, insurance, and securities regulations are compatible, among other issues.