Fintech refers to innovative financial services created by integrating finance with technology. Within Fintech, blockchain has drawn much attention. What kinds of changes will blockchain bring to workstyles and businesses in the future? On February 2, 2017, Sansan Innovation Project 2017 was held at the Hilton Tokyo Odaiba in Minato-ku, Tokyo. The Fujitsu Journal team reports on the sessions held under the theme of "Evolutionary Theory of Working Way."
Blockchain Is Changing Financial and Economic Structures
Blockchain is a technology that supports Bitcoin (a cryptocurrency). One of its prominent characteristics is that in lieu of a conventional "centralized system" approach it employs a distributed system in which information is shared across multiple systems without any specific central authority. Just as the Internet has greatly changed society and the economy, blockchain is expected to change the way businesses and society operate in the near future, and there are hopes that blockchain technology can be applied not only to finance but to areas such as logistics, services, and manufacturing.
In a session entitled "Shaping the Future with FinTech and IoT--New Ways of Working Brought about by Blockchain in a Decentralized Society," a packed venue listened to an engaging discussion among Hajime Yasui from Morgan Stanley MUFG Securities as moderator; Yukio Noguchi from the Waseda University Finance Research Institute, a leader in blockchain research; Shuji Kobayakawa from the Bank of Japan; and Kyuichiro Sano from the Commerce and Information Policy Bureau of the Ministry of Economy, Trade, and Industry.
Blockchain Technology's Applicability Attracting Attention from Global Financial Institutions
First, Mr. Noguchi introduced the current state of the blockchain as follows: "Blockchain is called a distributed ledger technology in which the systems involved can share and use in common part of a database (ledger information). This technology has begun to be applied in various fields; the most well-known application is Bitcoin. All trust was said to have been lost in Bitcoin after the Mt. Gox incident (the collapse of the then-largest Bitcoin exchange in Japan) in 2014; however, even if it was attacked by cyber criminals and the exchanges were stopped, it did not lose its market value. It turns out that this incident demonstrated Bitcoin's robustness."
Opposite in concept to Bitcoin are centralized financial systems as represented by Japanese bank notes. Mr. Noguchi explained that bank deposits can also be categorized as centralized financial systems.
In response, Mr. Kobayakawa talked about the challenges the Bank of Japan is currently working on:
"We are conducting a demonstration experiment to verify distributed ledger (blockchain) technology for a limited number of participants (closed type). We are accumulating experimental results in terms of the transaction processing speed (performance) and resilience despite an increase in transaction volume (availability). One purpose of this experiment is to examine whether blockchain technology can be applied to services we provide. Looking at the results so far, with regard to processing performance, it has become clear that the latency (delay) tends to increase as the number of verification nodes increases. Meanwhile, in countries such as the UK, Canada, Sweden, and China, discussions are underway as to whether banknotes and coins can be digitized as well as whether blockchain technology can be applied for such digitization. Given the history of humanity in which money has evolved while changing form, we believe that it is important to thoroughly research the matter while taking trends abroad into consideration."
Mr. Kobayakawa said that in the future, it will be necessary to consider the utility of blockchain technology in terms of whether this new form of money can serve as an option for end users, whether it can serve as a safe payment method, and even whether it can improve the efficiency of settlement services.
Five Areas Where FinTech Can Be Applied
Next, Mr. Sano talked about applying blockchain technology in non-financial sectors.
"Blockchain can be a solution that eliminates the presence of third-party central authorities that have been maintained at considerable cost to secure the credibility of business partners, which may prove to be a large part of the transformation brought by blockchain. Distributed computing has now evolved from IoT and AI. Sharing business and personal data stores, which have been spreading widely in Japan, are also examples of this distributed business model. Combining these solutions will leverage distributed architecture. The Ministry of Economy, Trade, and Industry announced in 2016 that blockchain technology's potential market could reach 67 trillion yen" and listed five areas where blockchain technology is expected to be applied.
"The first area is 'digital coupon and loyalty point programs.' Second is 'entitlement certificates, such as land registration, electronic medical charts, and various other certificates.' Third is 'sharing of digital content and ticket services,' which may become possible without a platform. Fourth is 'realizing open, highly reliable, and highly probable supply chains.' With blockchain technology, it becomes easier to keep track of the manufacturing process, from raw materials for products through to distribution and sales. Fifth is 'full automation and efficiency improvements in processes and transactions,' otherwise known as 'smart contracts.' Examples of these include automatic processing of wills of the deceased and a washing machine automatically placing an order for detergent to an electronic trader when the amount of detergent runs low."
Blockchain's Impacts on Workstyles
Mr. Noguchi next explained that businesses that earn commissions just by transferring information from right to left and checking the information will be replaced by the blockchain, which will greatly impact how financial institutions conduct business. It has been said that blockchain will reduce the costs of bank clearance and settlement by approximately one-fourth by the year 2022, which will also reduce the scope of banks' business and substantially decrease profit margins. At the same time, there is the advantage that blockchain can take over routine work done by humans.
Based on such a forecast, Mr. Noguchi explained future workstyles using a chart with the two axes representing the presence or absence of workers and managers.
The upper-left corner represents the structure of traditional organizations that have both workers and managers. The upper-right corner represents an automated production line with managers but no workers, while the lower-right corner represents a form of organization that has no workers or managers due to AI-based automation.
The Decentralized Autonomous Organization (DAO) is a form of organization with workers but without managers, and it forms the basis of the blockchain. "If this becomes widespread, the time will come when which jobs only humans can do and which jobs cannot be replaced by systems will be questioned," Mr. Noguchi said.
Only Humans Can Create Value
Following Mr. Noguchi's comments, Mr. Sano said that what humans are responsible for will be jobs to create added value in various areas.
Next, Mr. Kobayakawa talked about future workstyles from the viewpoint of a central bank employee.
"The central bank has been thought to be distant from IoT and FinTech. However, in the future, the number of opportunities to use FinTech in central bank services may gradually increase. For example, the time may come when a digital currency is issued by a central bank, or an individual holds an account with a central bank and performs settlement on a digital device. Central bank employees must consider the division of roles between humans and machines while harnessing their creativity amid technological advances, without being bound by conservative thinking."
The session concluded with a discussion on the importance of discovering jobs that can only be done by humans as the blockchain changes business.
To Create New Business Value
In this session, experts tapped their knowledge to explain that the blockchain may change finance, all kinds of transactions, and even the way assets exist, thus fundamentally transforming companies and social systems.
Fujitsu, which is focused on the blockchain, has been working to develop security technologies that can handle confidential information shared among multiple organizations as well as demonstration experiments for regional "stamp rallies." Aiming to create new business value in the future, Fujitsu will continue expanding the blockchain's application areas.
Yukio Noguchi Waseda University Finance Research Institute
Professor Emeritus at Hitotsubashi University
Shuji Kobayakawa Bank of Japan
Kyuichiro Sano Commerce and Information Policy Bureau, Ministry of Economy, Trade and Industry
Hajime Yasui Morgan Stanley MUFG Securities