Blockchain: Much buzz, little action

Bitcoin mining server farm  photo: Reuters

The only major Israeli entity to have implemented blockchain technology so far is the Israel Securities Authority.

Almost ten years have passed since the invention of blockchain, the technology that forms the basis of most of the digital currencies, headed by Bitcoin, which emerged in early 2009. In the past two years, many enterprises have talked about blockchain, and have even actively examined the possibility of using this technology in their systems, but so far, only a few have actually done so.

A great deal has been written here and elsewhere about blockchain - a distributed database the records on which, known as "blocks", are linked one to another and secured through cryptography. The blockchain only allows new records to be added to it; existing records cannot be altered. In the case of Bitcoin and many other digital currencies, each block contains a collection of transactions, currency transfers, recorded within a certain period of time on the blockchain. The process whereby blocks are added to the chain, and the records in each block are verified, is known as "mining". Through this process, bitcoins and other digital coins are created.

In a survey conducted by auditing and consulting firm PwC among 600 senior managers in fifteen countries, 84% of the respondents stated that the enterprises they managed were starting to be actively involved with blockchain; 20% said that they were at the research stage with a view to implementing blockchain; 32% said that the technology was at the development stage in their enterprises; 10% were at the pilot stage; at 7% of the enterprises dealing with blockchain had been paused; and only 15% declared that they had actually gone live with blockchain. 14% said they had no activity at all in this field.

Commenting on the survey, Maya Ben Shmuel, an audit partner in PwC's Tel Aviv office, told "Globes": "When you disperse the buzz around blockchain from the end of last year, in the end what you have is a developing technology. From the responses that we received from the managers it emerges that they are nearly all in some sort of process of using the technology, at least at the research or pilot level. The potential of blockchain is also starting to be discovered in non-financial sectors, such as exports and logistics."

PwC's survey did not cover Israeli enterprises, but it seems that although there is an active community of startups in this field in Israel, the rate of implementation of the technology in Israeli companies is still close to zero. In September 2017, Bank Hapoalim and Microsoft announced that they would collaborate on a system for bank guarantees on the basis of blockchain, intended for use by the bank's customers. The bank is, however, still a long way from integrating blockchain into its systems. Today, the project is still in the initial stage of converting archived bank guarantees to digital files, a stage that will last until mid-2019. Only after that will the project progress to the stage of using blockchain.

Surprisingly, the only large Israeli organization that has so far implemented blockchain in its systems is a public body, not a commercial one. Earlier this month, the Israel Securities Authority (ISA) announced that blockchain was being integrated into its information systems. Initially, the technology was integrated into the "Yael" system for transmitting messages and data to the entities that the ISA regulates. The next stage will be implementation of blockchain in the "Hatsbe'a hon" ("Capital Vote") system developed by the ISA to enable investors to participate in investors meetings from anywhere in the world. The plan is that blockchain will later be implemented in the Magna system through which reports by all regulated entities can be monitored. The ISA says that development of the application took three months and was carried out by Teldor.

ISA director of information systems Natan Hershkovitz is not surprised at the fact that the ISA has become a pioneer in implementing the new technology. "In 2003, we were groundbreakers in implementing PKI digital signature technology on reports submitted to the authority. Then too there were those who wondered why we were using new technology," he says.

Yael was chosen as the first system in which blockchain was implemented, Hershkovitz says, because it is the smallest and least complex of the three information systems that the ISA runs. The ISA said in its announcement, "Blockchain technology in the Yael system adds another security layer ensuring that the information transmitted by the authority to regulated entities is trustworthy. The technology validates the source of the announcements, prevents forgery and prevents changes and erasure. In addition, the system eliminates the possibility of denial of receipt of messages from the authority." Hershkovitz adds that the technology also makes the system ready for the cloud, should the ISA wish in the future to use the cloud instead of its servers for its information systems.

In the system in which the ISA implemented blockchain, Hershkovitz says, "Blockchain did not replace the database, but was added to it, and the costs were not terribly high." Next year, he says, will come the next stage of implementing blockchain in the ISA's Hatsbe'a hon and Magna systems. He points out that unlike in the public blockchain of digital currencies, such as Bitcoin, in private blockchain there is no mining process, and each block is made up solely of transactions recorded in the system.

Will we see more organizations using blockchain? Hershkovitz believes that this will happen in the future, alongside developments in the technology. "Banking, for example, is moving strongly in the direction of blockchain. The banks have realized that unless they lead this new field, they will lose their attractiveness."

Published by Globes, Israel business news - en.globes.co.il - on October 22, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Bitcoin mining server farm  photo: Reuters
Bitcoin mining server farm photo: Reuters
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