As soon as September, IBM will unveil a real-world use of blockchain, the online ledger that records peer-to-peer bitcoin transactions. Since IBM will be one of the largest organizations ever to apply bitcoin to actual business transactions, the move also goes far in validating the nascent cryptocurrency. Currently, IBM Global Financing has $100 million in capital tied up, and the move to blockchain is expected to free up some of it. Blockchain, by removing the middleman, is intended to make financial dealings more efficient.
The Wall Street Journal reports that IBM’s Global Financing unit “deals with 4,000 suppliers, financing customers and partners who conduct about 3 million transactions per year, worth $44 billion.” According to IBM vice president of blockchain technologies Jerry Cuomo, the unit is involved in approximately 25,000 disputes annually, “over issues such as the wrong number of computer parts in an order or deliveries that go awry.”
Resolving a problem with today’s procedures “takes an average of 44 days and requires employees to retrace steps through six or seven separate applications, as well as sometimes contacting banks and other parties involved.”
The improvement with a blockchain ledger is that tracing steps will be faster and “potentially more accurate.” Tests have demonstrated that resolution of disputes is cut to 10 days; quicker resolution will “free up capital faster,” says Cuomo. Blockchain will run parallel to the company’s existing finance applications, “using custom code to collect data at key points in the course of a transaction, such as when a purchase order arrives, when a shipment goes out and when payment is made.”
The software for resolving disputes will be part of IBM’s Blockchain platform, which IBM plans to sell although it hasn’t announced a date or price. IBM isn’t alone in testing blockchain. WSJ reports that “more than 40 big banks and financial firms” are running their own tests “as a secure and transparent way to digitally track the ownership of assets.”
IBM is also working with startup Everledger “on a blockchain system to manage the chain of transactions of high-value goods such as diamonds from mine to sale,” and IBM executive Arvind Krishna says the company is looking into “using blockchain internally in other ways, including tracking parts from its own suppliers.”
Other organizations moving forward with blockchain are NASDAQ, “with an exchange for private companies to issue debt and security that it built on blockchain technology from Chain,” and Toyota Financial Services, which is looking into blockchain “as a means to streamline supply chain operations.”
“The idea is that everything in a supply chain could have a permanent searchable record and its provenance would be known,” says think tank Tapscott Group chief executive Don Tapscott. “For example, the company could more easily determine later the source of faulty components if a product eventually breaks.”