Disrupting Government and
Finance Functions
Blockchain systems will impact on
financial institutions and financial trans-
actions, but can also be applied to any
process that requires a secure exchange
of information, including government
services, the medical industry, utilities,
insurance, property trading and telecom-
munications, and most supply chains, will
change significantly as a result of block-
chain technologies, adds trade technology
specialist firm Andile Solutions founder and
executive head Andries Brink.
South Africa has about 12-million people
who are not part of the formal banking
system – about 23.5% of the population –
and using blockchain technologies can
provide a secure, low-cost platform to
make financial services available to them,
says Francis.
“In August 2016, South African
Reserve Bank (SARB) governor Lesetja
Kganyago said that the central bank was
“willing to consider the merits and risks
of blockchain technology and other
distributed ledgers”. This indicates a
desire to keep up with the rapid pace at
which technology is developing to drive
financial inclusion.
“Financial inclusion and reducing the
risks of using physical cash are compelling
reasons to research the use of blockchain
technology in South Africa,” she
emphasises.
The SARB started researching the
technology and cryptocurrencies in
February. Further, in August, the
Association of African Central Banks,
comprising 35 African central banks,
including South Africa’s, chose financial
technology innovations, cybercrime and
challenges experienced by central banks as
one of two topics for its 2018 symposium.
“The costs to establish a trusted
transaction and information transfer
framework using blockchain are a fraction
of the current costs of existing systems,
and this alone will dramatically change the
business models of financial institutions,
stock exchanges and financial services
firms. It removes the need for these
organisations to function as facilitators
and intermediaries,” states Pillay.
Blockchain systems can replace various
government functions, such as identifica-
tion, the issue of birth certificates, property
deeds registration and licensing processes,
and allow for the services to be scaled,
almost without limit, thus enabling faster
and cheaper public services to be delivered
in a visible manner to participants – in this
case, citizens, he explains.
Such a system will also enable citizens
to “own” their personal data and control
who is permitted to access and/or use it.
Without permission, their information
will remain secure and inaccessible.
“The blockchain model is well suited
to providing an immutable tracking and
tracing platform to provide verification
of the origin of products. It can easily
be retrofitted to existing product authenti-
cation systems in supply chains, similar
to how personal identification blockchain
systems would function, whether linked
to government or not,” says Pillay.Blockchain in Business
Centralised transaction models have
come under attack. The interbank transfer
service, Swift, was hacked and subverted
by cybercriminals to steal millions of
dollars.
To counter attacks on central transaction
models, financial services firms in US
and European capital markets are shifting
to blockchain platforms, with similar
activity in markets such as Japan,
despite the sector being conservative and
compliance-focused, says information
technology services multinational
Dimension Data Group chief technology
officer Etienne Reinecke.
“Cybercriminals who perpetrated the
recent WannaCry ransomware attack
demanded payment in Bitcoin – a crypto-
currency based on blockchain. If cyber-
criminals are confident that Bitcoin
provides a safe mechanism for the
payment of ransoms, it indicates how
secure the distributed ledger approach is.”
Further, in Internet of Things (IoT)
systems, millions of small transactions
are generated and collected from a
distributed set of sensors. It is not
feasible to operate these systems using a
centralised transactional model. It is too
slow, expensive and exclusive. The cost
of the transaction has to be near-zero or
free, and the cost elements of a centralised
model do not support the potential business
model in IoT, Reinecke explains.
He adds that interesting applications
of blockchain and IoT in the area of
cybersecurity will emerge in 2018.
“Significant attacks have been launched
from low-cost IoT end points, and there
is very little incentive for manufacturers
of these devices to incur the cost of a
security stack, which leaves them
extremely vulnerable. Blockchain can
play a fundamental role in securing IoT
environments.”The Limits
The most glaring omission around
blockchain currently is the lack of
regulation and legislation, emphasises
P i l lay.The need to ensure the security of
these platforms and their conformance
to national laws is important to ensure
the protection of the digital identities of
people, their transactions and activities
on blockchains.
Any distributed ledger used by an
enterprise or industry needs to conform
to data requirements in the countries in
which it operates, states Baker McKenzie
Johannesburg partner and technology,
media and telecommunications practice
head Darryl Bernstein in the ‘Fintech
Report 2017’ White Paper, written in
collaboration with fintech company R3.
He explains that existing blockchains,
such as cryptocurrencies Bitcoin and
Ethereum code bases, can indiscriminately
broadcast private data to all participants
of a network and, therefore, may not
always be suitable for use in financial
services.
“Distributed ledgers have been
developed that share certain data only
with participants who need to see it.
These distributed ledger technology
implementations are more flexible and can
more easily meet existing and potential
future data requirements,” adds Bernstein.
Meanwhile, the potential of using
secure blockchains to be used to hide
and/or move money illegally across
borders must also be addressed, as
merely buying cryptocurrencies makes
the funds internationally tradeable,
confirms Roodt.
“Enforcement is always catching up with
fraudsters: they change their tactics to stay
ahead of fraud prevention technology and
regulation,” notes Wipro Technologies
banking and payments chief executive
advisor Hari Subramanian.
“What if events that would triggerLO ENGINEERING NEWS | December 8–14, 2017 19
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FINANCIAL SERVICES
Blockchain technologies can provide a secure,
low-cost platform to make financial services
available to people currently outside the formal
economySource: Bloomberg