This feedback is anonymous. Please Contact us if you would like a response.

Main navigation
Main content area

What is blockchain?

Blockchains are a particular type of ‘distributed ledger’ technology. At their core is a shared database that is organised as a list of ‘blocks’, with the constraint that an additional block of data is appended to the ledger only if a majority of nodes ‘agree’ that it is valid.

Agreement between multiple nodes about the validity of a block is derived via a ‘consensus mechanism’, of which there are several types. The new block is cryptographically ‘chained’ to the previous block that was added to the blockchain, which was chained to the block before it, and so on, all the way to the first block (the genesis block). Hence the name ‘blockchain’.

As blocks are only added to the blockchain with the consensus of independent nodes, there is no single point of failure through which the blockchain’s data can be corrupted. This makes unauthorised alterations significantly more difficult than they may be with traditional ledgers, which can be modified by a single trusted authority.

What’s in a ‘block’?

Information in Blockchain systems is added in ‘blocks’

The header includes metadata, such as a unique block reference number, the time the block was created, and a link back to the previous block.

The content typically includes a validated list of transactions made, their amounts, and the addresses of the parties to those transactions, along with digital assets and instruction statements. [3]

The blockchain opportunity for Australia

There are opportunities across our economy which can be seized and enabled by the use of blockchain technology: to create jobs, to create new economic growth, to save businesses money, and to improve our overall productivity. In addition, the combination of blockchain technology with other technologies, and the digital data underpinning blockchains, can add enormous additional economic value.

With broader application, Gartner predicts that blockchain will generate an annual business value of over US$175 billion by 2025 and in excess of US$3 trillion by 2030. [4] By 2023, blockchain will support the global movement and tracking of US$2 trillion worth of goods and services annually. [5] Within the financial services industry alone, analysts predict blockchain will save US$15–20 billion annually by 2022. [6] The costs to Australian food and wine producers of direct product counterfeiting and substitution, was estimated to be over AU$1.68 billion in 2017 alone. [7] Blockchain solutions can help to address this issue.

There is growing interest and investment in blockchain as a decentralised, peer-to-peer solution with the potential to deliver significant cost savings. Many people now have lower trust in social and traditional media, banks and governments to report the truth, protect privacy, and act in the interests of everyday people. Given this context, blockchain and other decentralised technologies may increasingly be preferred to traditional intermediaries.

Blockchain’s specific features make it an attractive option for conducting transactions and maintaining records, with potential applications across many sectors of the economy such as finance, trade, health, energy, water, resources, agriculture and credentials.

There are potential applications in both existing and emerging industries—from provenance, registries, energy and water trading, to blockchain for courts of law and spacecraft systems. Transactions facilitated by blockchain could open up new horizons for global trade and become the next step in the evolution of monetary systems. [8]

In Sectoral opportunities, the Roadmap lists a number of sectors where blockchain shows strong potential. It showcases the agricultural sector with a wine export example; the ‘trusted credentialing’ sector with an education example; and the identity sector with a ‘Know Your Customer’ checks example.

While there are significant opportunities for blockchain technologies, some use cases are more suited to blockchain than others. As the United States (US) Department of Homeland Security (DHS) notes:

Blockchain is best suited for use cases requiring at least three of the following: data redundancy; information transparency; data immutability; and a consensus mechanism. If only one or two are required then blockchain may work, but there are likely simpler or cheaper ways to solve the problem. [10]

Case Study: ASX & CHESS

ASX Limited is implementing a blockchain-based solution as the post-trade infrastructure for Australia’s equity market. The Clearing House Electronic Subregister System (CHESS), developed by ASX over 25 years ago, is currently the core system used by ASX to perform clearing, settlement and other post-trade services for the Australian equity market.

In 2015, ASX started a process to evaluate replacement options for CHESS. ASX commenced stakeholder consultation in 2016 to gain a better understanding of the new functionality and services that users of CHESS would like delivered by the replacement system. Dominic Stevens, ASX Managing Director and Chief Executive Officer, announced in late 2017 that, following careful examination:

We believe that using [blockchain] to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets [9] .

In 2019, ASX started customer development and testing for software vendors and in-house systems connected to CHESS in a dedicated customer development environment. The blockchain solution is currently estimated to go live in the first half of 2021.

The blockchain landscape in Australia

An analysis of 138 blockchain activities in Australia conducted by CSIRO’s Data61 (the data and digital specialist data services arm of CSIRO), and published in April 2019, shows a general upwards trajectory, with most of this activity coming from small-to-medium sized businesses in New South Wales and Victoria. Although the majority of activities were recorded within capital cities, there were some examples of regional blockchain activities. For instance, over 30 businesses in the Central Queensland towns of Agnes Water and Seventeen Seventy are now accepting cryptocurrency as a form of payment, designed to appeal to international tourists in the niche market of crypto-funded travel.

The leading industry for blockchain activities in Australia is financial and insurance services, followed by professional, scientific and technical services, and retail trade (see Figure 1).

Figure 1: Share of Australian blockchain activities, by Industry

Around 93% of blockchain activities have been undertaken by small-to-medium sized organisations with 1 to 200 employees, with a growing share of start-ups in Australia identifying with the blockchain industry—up from 3.4% in 2016 to 8.1% in 2018. Analysis of blockchain activities also demonstrates that Australia is home to a number of world-first blockchain applications, which include bonds operations; smart programmable money; a national blockchain system and international standards; as well as industry-specific trials in energy, agriculture and the public sector. [11]

Australia ranks sixth internationally in blockchain-related patent filings. There are currently 49 patent families, which are defined as a set of patents taken in various countries to protect a single invention, that address issues ranging from the data-processing side of the technology (encryption, transmission) to its applications in payment systems, administration and financial services. [12]

The Australian Government has invested in a wide range of blockchain-related activities to date. Funding has included support for government, private sector and university research, innovation and collaboration, through programs such as Austrade trade missions; the Entrepreneur’s Programme; Australian Research Council Grants; and Business Research and Innovation Initiative pilots. The government has also provided funding to Standards Australia to enable Australia to lead the development of international standards for blockchain and it has committed to the development of this Roadmap, in close collaboration with industry and universities.

The Government’s investments have been improving blockchain technology; demonstrating opportunities and use cases; and helping businesses bring blockchain products to market.

Figure 2: Example of how blockchain works

Figure 3: Blockchain myths busted

Myth: Blockchain is bitcoin

It may have been Bitcoin that brought blockchain to public attention, but the two are not synonymous.  Blockchain is the underlying technology for Bitcoin, enabling bitcoin transactions to occur directly between two parties without going through a third party like a bank.

Myth: Blockchain is fintech

Blockchain is often thought as being a financial services technology, because of its association with cryptocurrencies like Bitcoin as well as the high level of interest shown by the fintech sector. However, its application for the purpose of tracking and recording data can add value to many sectors—such as agriculture, healthcare, real estate and retail, to name just a few.

Myth: There is only one type of blockchain

There is more than just one type of blockchain. In a public blockchain, anyone can read and write the blockchain and participate in the consensus process. In a private blockchain, a central authority regulates everything in the blockchain, including writing and reading from the chain and the consensus process—hence, it is not free for anyone and everyone. In a permissioned (private) blockchain, a predefined set of members have a role in the consensus mechanism and have special rights to read and/or write to the blockchain.

Signposts for the future: 2020–2025

  1. Formalise the National Blockchain Roadmap Advisory Committee and rename it the National Blockchain Roadmap Steering Committee. The committee would have a Terms of Reference for it to oversee next steps following on from the Roadmap. The membership of the committee could be extended to include key regulators, it could also enable secondments to the committee for specific projects, and host ongoing Blockchain Meet-Up events. A role of the committee would be to provide advice on existing government programs and support that is available to the sector, for example the Incubator Support Program, Entrepreneurs Program, the Cooperative Research Centre projects program, the Business Research and Innovation Initiative and Venture Capital programs. This committee would ensure close ties with other relevant committees such as the Treasury Fintech Advisory Committee. The National Blockchain Roadmap Steering Committee can provide advice to government on the next two use cases to be explored jointly, taking into account whether there is industry or research sector support to progress the opportunity, as well as the size of the opportunity.
  2. Establish a collaborative model comprising working groups of industry, the research sector and government to progress analysis on the next use cases, with each providing equal funding contribution. In progressing the next use cases, ensure there is a mechanism for direct engagement with relevant regulators. These working groups can provide advice to the Steering Committee on specific regulatory challenges, and potential options to progress solutions to these challenges, such as experiments or pilots of regulatory approaches.
  3. Investigate options for progressing the three use cases in the Roadmap, including completing a full economic analysis of Agricultural wine exports and credentialing and investigating a possible pilot project on Know Your Customer checks.
  4. Government to establish and coordinate a group of government blockchain users, with state and territory government representatives invited to join, to discuss the learnings from existing government use cases, promote and diffuse these learnings across government, and identify further government use cases.
  5. Look internationally to identify examples of countries using blockchain to provide efficient government services, for example Estonia, for learnings for Australia.
  6. Work closely with blockchain providers to engage with the Business Research and Innovation Initiative program and have a specific challenge in one of the use case areas we know blockchain can provide good solutions.
  7. Ensure that blockchain is included in broader policy work to increase management capability around digital technologies.
  8. Industry and educational institutions work together to develop common frameworks and course content for blockchain qualifications.
  9. Work with Austrade on a capability development program for Australian blockchain start-ups so that they are ready to expand globally and link qualified companies to Austrade supported programs such as Landing Pads.
  10. Work with Austrade to deliver a blockchain focussed inbound investment program introducing potential investors to Australia with a view to achieving outcomes that grow and bring capability to the Australian blockchain ecosystem.
  11. Leverage existing bilateral agreements to consider pilot projects or collaborations incorporating blockchain technology with other countries.
  12. Work with relevant government departments to ensure Australian businesses can connect into emerging digital trade infrastructure being developed.

Footnotes

[3] Will blockchain transform the public sector?

[4] Blockchain Potential and Pitfalls

[5] Blockchain: What’s Ahead?

[6] Will blockchain transform the public sector?

[7] Food Innovation Australia Ltd 2017. Counting the cost: Lost Australian food and wine export sales due to fraud.

[8] Lowe P. 2017. An eAUD? Address to the 2017 Australian Payment Summit. Sydney – 13 December 2017 Reserve Bank of Australia

[9] (external download) ASX Selects DLT to Replace CHESS Media Release 7 December 2017 (272 KB PDF only) (Website: Australian Securities Exchange)

[10] (external download) Using Blockchain to Store and Protect Data and Systems (1MB PDF) (Website: 2018 AEP Analytic Deliverables)

[11] Blockchain 2030 - A look at the Future of Blockchain in Australia

[12] Blockchain 2030 - A look at the Future of Blockchain in Australia