Developing a business case for blockchain is inherently more challenging than other technology projects, because the cumulative value of the distributed network technology is often broader than one individual organisation.
That’s the view of Dan Chesterman, CIO of the ASX, which is currently replacing its aging Clearing House Electronic Subregister System (CHESS) with a blockchain solution.
During a Q&A session at Gartner Symposium on the Gold Coast yesterday, David Furlonger, distinguished VP Analyst Gartner, cited a lack of a viable business case as a key challenge for advancing blockchain proofs of concept to “full blown deployment and development”.
Chesterman said there is a much harder piece, which involves “building the rules of the network” and coordinating the required investments across a number of different parties.
“One of the challenges for blockchain as a technology is it inherently requires collaboration, and the business case may not be in the four walls of any one organisation. The investments and benefits are in the broader market — and people don’t always want to share that,” he said.
He described a “serendipitous sequence of events” that allowed the exchange to adopt DLT technology — it had a specific use case and knew replacing CHESS would require significant change.
“We saw there was potentially value but the value might not be within our four walls — the cost of us providing clearing and settlement functions won’t largely decline on the back of replacing a fully depreciated 25-year-old piece of technology with something newer which does have costs attached to it,” Chesterman said.
The new solution creates “optionality and strategic growth options for the organisation,” he said.
He added that some benefits are hard to calculate when they potentially are new services or new capabilities which haven’t yet been offered.
Collaboration and coopetition
Another challenge blockchain faces is the multiple external stakeholders, who may in fact be competitors, needing to work together to drive adoption.
“You could implement a blockchain within the context of a large and complex organisation, but a lot of blockchain solutions are actually trying to address network or market problems rather than the issues of one individual organisation,” Chesterman said.
“A key inhibitor to the implementation of blockchain is that it is going to be quite hard to get adoption across a network. I think that potentially plays into the fact that you are actually asking organisations who might be in competition to play together. That is always difficult to start.”
McKinsey calls this coopetition, when “Natural competitors need to cooperate, and it is resolving this coopetition paradox that is proving the hardest element to solve in the path to adoption at scale.”
This level of collaboration is also apparent in the ASX’s implementation process, which Chesterman says is “the most consultative process I’ve been involved in”. The design process has been accompanied by monthly workshops with regulators, customers, “many webinars” and two consultation papers.
“It is by nature a collaborative technology so it needs to be thought of in that way,” he said.
DLT versus Blockchain
When discussing the CHESS replacement, the ASX prefers the term Distributed Ledger Technology (DLT) over blockchain. A recent speech to shareholders by ASX’s CEO, Dominic Stevens, discussed the project at length without a single mention of blockchain.
The language is an attempt to highlight the differences between the solution being developed by the Exchange and its partner Digital Asset, and the world of crypto currency, Chesterman said.
“Blockchain came to prominence largely on the back of the public bitcoin blockchain, which was the first at-scale implementation of a blockchain solution. That has a number of features that we are not implementing,” Chesterman said.
“We tend to use Distributed Ledger Technology, rather than blockchain, to help draw that distinction.”
Specifically the bitcoin blockchain has distributed consensus, Chesterman explained, meaning the chain has multiple writers and requires “computationally heavy proof of work and processes which allow that bitcoin blockchain to operate without double spend.” That’s not a requirement for the ASX.
“We are not trying to solve a trust problem. People do inherently trust the ASX to be the source of truth for the data that was in CHESS,” Chesterman said.
“What we are implementing is a solution which solves a data synchronicity and data harmonisation problem. If you boil down the key challenges we’ve got within the post trade environment within Australia — it’s really one where there isn’t a reliable, near-real-time, accurate source of truth that different participants can rely on.”
The current system, implemented a quarter of a century ago, is message-based architecture. “We are the sole writers to the ledger but we keep in contact with all of our participants via messages. What that really means is no one is ever really up-to-date except for us.”
The new DLT system will mean participants’ records will be in sync with the exchange.
“What we are trying to implement is a layer of data synchronisation and harmonisation upon which there will be the ability for not just us, but anyone, to create new applications that will be much more readily deployed and used by the market,” he said.
More broadly, Chesterman believes there will be “more sophisticated views” about the differences between a private permissioned network versus what is a public blockchain.
“There are different flavours of blockchain and Distributed Ledger Technology that are being explored,” he said.
“Some are where there is a natural owner in a group private permissioned network that is ready to drive adoption, that I think will take hold very quickly. And some fully decentralised solutions may take quite a long time, not because of the technology not being ready but because we as society aren’t necessarily ready.”