Our personal and professional lives are connected 24/7 with most tasks completed in a few simple clicks, but are we really as efficient as we believe?
Currently, a countless number of private, centralized databases are in use across all business sectors to record transactions and facilitate data exchange. The companies that fuel these databases act as intermediaries between exchange participants with their main value in establishing third-party trust, record keeping and navigating disputes. The problem lies in the fact that the vast majority of the institutions and their systems communicate independently of one another creating inefficiencies for the very clients they are so dutifully trying to serve.
The blockchain is the solution. In the simplest definition, blockchain is a public database that permanently records transactions. It is an unbiased, technological medium that can take over record keeping, disputes and data exchange thus decreasing costs and increasing efficiencies. This technology will drastically improve Finance, Real Estate and Healthcare – three industries that have seen very little change over the last thirty years.
In the 1990’s, the world’s financial system began expanding its digital presence. The hatchlings of e-commerce were budding with a new company called Amazon beginning to sell physical goods through an online marketplace. The concept of remote work was introduced and people began moving to foreign destinations. The world began globalizing and the ability to move money across borders became increasingly important.
Banking institutions adapted and began to make it easier for consumers to send money around the world through the expansion of the Society for Worldwide Interbank Financial Telecommunication or SWIFT.
Supported by 239 banks in fifteen countries, SWIFT was established in 1973 with the mission of creating a global standard for transaction processing.
SWIFT achieves this by passing messages to other members until the message reaches its final settlement institution. For example, for Bank A to send a message to Bank B, it would require authorization from Institution C. Bank A formats the message according to the standard and securely sends it to SWIFT. SWIFT then guarantees it’s secure and reliable delivery to B after the appropriate action by C. The problem is that paper currency is slow to move.
To overcome these challenges, banks are exploring new blockchains like Ripple as a settlement/remittance layer. Ripple is a global payment protocol focused on transferring money quickly, securely and inexpensively using the XRP Ledger.
Ripple requires at least two entities for a transaction to consummate. The first is a regulated financial institution that holds funds and issues balances on behalf of customers. The second consist of market makers, primarily hedge funds/trading desks, that provide liquidity. Combined, Ripple creates a global network of financial stakeholders that, through connectivity and liquidity, decrease the costs of international settlements and remittances. This process is analogous to SMTP, which enables disparate email systems to communicate under one protocol, permitting users to send emails effortlessly between Hotmail and Gmail without learning a new technology.
Ripple will bring a new layer of efficiency to international finance. Every institution will be interoperable with every other banking institution leading to a frictionless method of settlement and remittances. Banks and consumers will save hundreds of millions annually by cutting out superfluous intermediaries and decreasing the amount of time.
2. Real Estate
Real estate is the largest asset class in the world, surpassing 217 trillion. Despite this, the transaction is riddled with inefficiencies starting from the lack of interoperability between listing portals all the way down to settlement and wire fraud.
In the US, there are over 80,000 residential and commercial brokerages, 90% of which have a website. Currently, the systems have no way to communicate with each other so for listing exposure, agents turn to regional outlets like Multiple Listing Services and third-party syndicators that offer a national reach.
However, by listing on these national outlets, users exchange data control for exposure that results in high subscription fees. Blockchain-based technology can be used to give the user full control of their listing and transaction data and the downstream flow of that information.
Instead of giving 123 Apple Street to a centralized portal that cannot interoperate with other systems, we can lock 123 Apple Street onto the blockchain and store its contents in decentralized systems. Once locked onto the blockchain, a key is generated.
The key, which can be shared with any third party, must be used to access the data. And, with data security a priority, the key can be revoked by the owner at anytime. This same data exchange can be applied to the transaction, eliminating the traditional process where data is exchanged back and forth via emails and PDF.
A few companies are already tackling title and the tokenization of individual properties. Companies like Harbor recently announced their first offering of a tokenized REIT representing $20M USD of private equity in The Hub at Columbia, a premier off-campus, student housing high-rise serving the University of South Carolina. Equity is divided into 955 shares (tokens) priced at $21,000 each.
Blockchain will streamline the listing and transaction process – from listing to closing of title – and provide a universal layer of connectivity within the real estate industry.
Healthcare will also benefit from similar data exchanging techniques as the real estate industry. Today large drug companies are spending billions on clinical trials; but because of the cost and sensitivity of the data there is little incentive in sharing the results with their peers.
Take for example Company X who is running a clinical trial on a new Type II Diabetes drug. They enter phase II of the trial and realize the results are suboptimal leaving the option of either revisiting the chemical compound and initiating a new clinical trial or abandoning the drug altogether.
Now imagine Company Y, who is testing a new blood pressure medication for adults and is running into similar challenges during their trials. X and Y are testing different medications for different ailments but the data may be able to benefit one another as high blood pressure is often a precursor to diabetes.
By providing a system where the two companies can mutually exchange data in a trustful, secure environment, they can capitalize on each other’s findings.
Today, this is all but a pipe dream. However, with the blockchain and smart contracts, these companies can create alliances and establish trusted environments fueled by blockchain technology. Entrusting third-party tech startups (which is a concern today and why it hasn’t worked) to handle the exchange would all but be eliminated; and within this pharmaceutical network, each participant would be granted access by the other participants.
As within Finance and Real Estate, they would program rules within the contracts that lie on top of the blockchain issuing requirements of what data types are to be shared, masking data outside of the specified set.
Technology has brought us a long way. With open minds and open channels of communication, the possibilities of where we go next are endless.