By Dr Drew Donnelly, Compliance Quarter.
Last year, the Federal Government announced its commitment to Australia being a world-leader in Financial Technology (fintech). One aspect of this is fostering the use of digital currency (such as ‘bitcoin’) in Australia. In Three ways that financial technology changes can grow your business, we discussed the Government’s recent support for the use of digital currency through removing the ‘double GST’ which often applies to digital currency transactions.
In its fintech priorities (read here at http://fintech.treasury.gov.au/australias-fintech-priorities), the Government also confirms its support for fostering ‘blockchain’ technology in Australia. So, what is blockchain? And how might it revolutionise Australian industry and government administration?
What is Blockchain?
Blockchain is a distributed ledger system, originally created to support the use of digital currencies such as Bitcoin, but capable of supporting a whole range of applications. Blockchain explained in simple terms, is a massive database providing a secure record of transactions and a method for verifying them. This ledger can be accessed and viewed by a large group of users, who are able to ‘view’ a draft transaction and assess it using a set method or protocol before it gets ‘finalised’ and permanently recorded on the ledger. To illustrate the verification method, consider Bitcoin ‘miners’. The miners engage in a form of computation. A miner arriving at a correct ‘answer’ through that computation is often compared to a sudoku answer -hard to do but once done, easy for other users to check its correctness. Once this process is completed, the transaction is then recorded permanently in the ledger and the miner is awarded with a certain amount of digital currency for their work.
While Blockchain was originally established to maintain the integrity of digital currency, it can be put to other uses. For example, Australian Securities Exchange Limited (ASX) has invested substantially in the development of a private blockchain to replace its aging CHESS system for verifying post-trade transactions.
Earlier this month the Commonwealth Scientific and Industrial Research Organisation (CSIRO) published two substantial reports Distributed Ledgers – Scenarios for the Australian economy over coming decades, and Risks and opportunities for Systems using blockchain and smart contracts, which set out in considerable detail potential future uses of blockchain for Australia. Some potential uses identified include:
- Supply Chain: keeping track of physical objects and recording alterations as they change possession or ownership
- Metered access to utilities: keeping track of and verifying the use of a resource
- Intellectual property and digital rights: meta-data and other identifiers of intellectual property could be recorded and verified on the blockchain.
- Attestation/proof of existence: Keeping a time-stamped record of physical documents or evidence
- Corporate governance: keeping track of Board and shareholder voting.
Blockchain could also end up being useful for government administration, including:
- Verifying people’s identity for the use of Government services
- Verifying compliance with tax regulations.
For further information consult CSIRO’s blockchain research and analysis at http://www.data61.csiro.au/en/Our-expertise/Expertise-Strategic-insight/Blockchain
In posts to follow we will look further at the use of blockchain in compliance, its limitations and the role of regulators in industries managed with blockchain.