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January 29, 2016updated 30 Aug 2016 3:02pm

From insurance to music – finance is not the only industry being disrupted by blockchain

Analysis: Deloitte finds the distributed ledger technology has the potential to change everything from government to the housing market.

By Charlotte Henry

Deloitte has released a major report into the future of blockchain – the distributed ledger technology that lies at the core of Bitcoin. The technology has been receiving a lot of attention in the finance and banking sectors recently, with many believing it can bring major benefits.

Jerry Norton, VP Financial Services, UK, at system integrator CGI, told CBR that he considers blockchain to be "the biggest single advance in fintech of the past decade."

Big four accountancy firm Deloitte has put together a report which seeks to determine whether or not blockchain is an enigma, paradox, or an opportunity, and looks to decipher who could benefit from the technology, giving examples from a range of sectors across the economy.

One of the major parts of the economy that Deloitte feel could benefit from using the technology is the media industry, which it says battling with some distribution and charging issues in the digital era..

The report said: "blockchain technology could help resolve a number of challenges by connecting authors, musicians, and videographers directly with consumers, as well as by making the organisations at the heart of the industry operate more efficiently."

One part of the media Deloitte particularly focused on is music. It said that "the inner workings of the music industry are struggling to keep up with digital technologies." Old fashioned contracts are failing to adapt to the modern era, and streaming services have disrupted the music industry’s traditional business model.

The report finds that blockchain could help the music industry by being "used to store a cryptographic ‘hash’ of the original digital music file, associating it with the addresses – and, potentially the identities, of the people involved in its creation."

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It also believes that blockchain could also be used to store a smart contract which would gives instructions as to how the artists would like to be paid for their music. The result of all this would be a better system for paying music royalties to artists.

A spokesperson for PRS, the organisation that administrates artists royalties, said: "Blockchain technology has many potential applications for many industries and the music industry is amongst them. PRS for Music is constantly looking for ways to the improve the ability for our rightsholders to receive fair and transparent payment for the use of their music. While it is unclear what role Blockchain could serve for the music industry and there are many questions to answer, it is something we are interested in. It is prompting great debate around the opportunity to change current structures and develop new solutions for the benefit of creators and users of music".

A less glamorous, but no less important sector Deloitte thinks could benefit from blockchain is insurance. The report said there is "great potential" for the use of blockchain in the area.

Again, the benefit will come in the form of smart contracts which would be powered by the blockchain and help "customers and insurers…manage claims in a transparent, responsive, and irrefutable manner."

The industry, the report finds, has issues with customers not always understanding the legalistic language used, and insurers are having to navigate increasing regulation and the threat of fraud, such as "smash for cash" deliberate motor accidents which cost the industry about £400m annually.

The blockchain could do things like reject multiple claims from the same accident, as it would know that that such a claim had been made previously. It could also help with the enforcement of claims by doing things like trigger automatic payments when conditions have been met and validated.

Banking is one of the most common contexts that blockchain is currently discussed in, and Deloitte also found that the industry could benefit from the technology.

It said that blockchain could help automate the process of sharing customer information, which would bring down the number of compliance errors that occur.

Anthony Duffy, director of retail banking, UK & Ireland, Fujitsu, told CBR that he considers blockchain "one of the most exciting technology-led developments in financial services today."

"Banking is, at heart, a business based on the transfer of information and data," he said. "Blockchain technology offers the potential to provide fully accurate, timely and complete information more cheaply and through systems which sit outside traditional banking infrastructures."

Norton said that a large number of "experiments and proofs of concept" took place in the blockchain space during 2015, but believes that it could become in mainstream use by banks in 2017.

"Initial uses are likely to be within the back-office, such as document delivery, affirmations/confirmations and settlement processing, which offer cost reduction and efficiency gains for banks," he said.

Duffy too points out that work in the banking sector on blockchain is already beginning. "Leading work in understanding how the blockchain opportunity might work in financial services is the R3 consortium," he said.

That group started off with 11 members in September 2015, and at the time of writing has 42, and is running experiments to test the potential of blockchain and "definine a common set of standards and best practices, before moving on to identify commercial applications which might well include payment," said Duffy.

It is not only the private sector that Deloitte feels could benefit from blockcahin technology. It envisions advantages in the public sector too, in particular in housing and asset registry.

The sheer size of the housing market make it very expensive to keep track of all the transactions that occur. For example, in the financial year 2014-15 there were 1.2m transactions completed that had a value of £40,000 or over.

The report found that housing could be treated like Bitcoin, and "it would be possible to associate a unique house or piece of land with a particular coin, or fraction of a coin, and exchange it just like any other transaction using digital currency."

Smart contracts would again be used and the blockchain could "increase the efficiency of transaction processing and reduce, if not entirely prevent, property fraud," Deloitte find.

Steve Thorn, SVP UK Public Sector, CGI, see broad advantages for the public sector in using blockchain. Government is at its heart a key record keeper for its citizens and the technology could revolutionise areas including tax, benefits and VAT accounts. In all such cases there is a need for fraud-resistant updates to records that show ownership and obligations – which is exactly where the Blockchain makes a difference. The ability to seamlessly share highly trustworthy information, underpinned by the principles of consensus and cryptography, offers a powerful new approach," he said.

Overall, the Deloitte report makes it clear that blockchain has the capability to disrupt a variety of industries and transaction types across both the public and private sector. Banking has always been key, but Thorn says "other sectors are now imagining how this new innovation might change their business processes for the better."

As more and more major institutions follow the lead of start-ups and look into blockchain technology, we could begin to see it use in the not so distant future.

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