Tuesday 23 June 2020 9:00 am

Interoperability and regulation: the key to DLT mass adoption

If we were to rank all emerging technologies for their power to transform the world, DLTs (distributed Ledger technologies) would be right up there. And, among the many different types of innovation, blockchain would probably be nominated as the most significant because of its potential for creating secure, real-time communication networks with the ability to support and enhance everything from supply chains and payment systems to Smart Contracts and healthcare data sharing.

The operative word in the previous paragraph is ‘potential’. Because, while blockchain technology shows enormous promise, that promise won’t be realised until mass adoption occurs. And, while we’re undoubtedly getting closer to that point, we’re not – quite – there yet. So the key question is: what’s preventing mass adoption? And the answer can be summed up in a simple single word: interoperability. Only when DLTs can interoperate simply and easily will they (and particularly blockchain) be universally accepted as a default approach to connectivity in a wide range of applications. 

In one sense, of course – an essentially technical sense – this challenge is already solved. My own company, Quant Network, provides a DLT operating system which offers enterprise interoperability between DLTs at scale. But, before we reach the tipping point of mass adoption, the condition of interoperability must be met in a wider sense: we need to deliver not only technical interoperability but governance interoperability and business interoperability, too. And this will require the adoption of regulatory frameworks and international standards across all jurisdictions. 

My conviction that regulation will play a fundamental part in driving the market adoption of blockchain began as long ago as 2009, during the global financial crisis. In the decade before this, I had held various cybersecurity roles both in the private sector and within governments, and I now held a senior role in HM Treasury, helping to transform the way Government operates. 

It was at the height of the 2009 crisis, while we were focused on implementing measures to strengthen the economy, and setting up UKFI to take on the toxic assets from RBS and Lloyds, that I came across the Satoshi white paper. This famously introduced Bitcoin, and described the way in which the protocol would work. The paper had been published only a few weeks previously, and – as a professional in security technology – it interested me very much. In some ways, perhaps, we had been here before, during the dotcom bubble, in which various faddish digital currencies such as Beenz, Flooz and InternetCash.com emerged as shiny new Internet toys. But that’s all they proved to be: toys. They disappeared as quickly as they arrived. This time, though, it was different: Satoshi’s paper proposed the use of a combination of proven technologies to transact over a P2P network which exploited the underlying mathematics and cryptography of the system to ensure security. I was, I confess, excited at the mixture of innovative thinking and theoretical rigour. The idea, it seemed to me, had potential.

Shortly after reading the Satoshi paper, I spoke at an HMG conference, and took the opportunity to ask the 500 government delegates if they had heard of the technology. No-one had. However, despite – or perhaps because of – this, I decided to promote the technology internally, by arranging meetings of the GCHQ team with the objective of understanding blockchain and its underlying mechanism. It was then, in 2009, that I asked our Treasury economic policy team to complete an assessment of the technology, with respect to its implications for the UK economy. Their report concluded that blockchain would have no material impact. 

Of course, it was early days. So, I kept close to the technology and followed the progress we were all making, while fulfilling various senior Government security roles, in both the UK and Australia. During this time, the term ‘blockchain’ was being used more and more. By 2014, although a recognition of the technology’s potential had taken root, the industry had begun to adopt a siloed approach – different blockchains were being developed in isolation. It was around this time, in my role as CISO for the Department of Health, I faced a data interchange issue between different systems and jurisdictions. I began to think about DLT technology might be used as a secure overlay to health systems. 

Having voiced this idea in various forums, I was approached by Standards Australia who wanted a discussion on whether the concept would work as an ISO Standard for blockchain. The objective would be, ultimately, to enable interoperability and security across blockchains, in a similar way to how we have met the challenge with mature technologies such as databases and so on. As a result, I sought to create a common protocol and language by leveraging what had been learned in the Financial Services sector with ISO20022

During this period, blockchain was rapidly gaining recognition. But, while it was being seen as an increasingly viable solution for some applications, most shied clear of commitment. The same concerns over the technology were heard again and again. Why can I not use multiple DLTs at the same time. Why do I have to be locked-in to a particular DLT for an indefinite period of time. Why can I not seamlessly move DLT technologies, vendors or providers whenever I want? 

They were questions which, with my experience in Government, seemed to have a clear solution. What was required was a DLT operating system: a universal overlay that would provide interconnectivity and interoperability between not just different DLTs, but other legacy networks too. Such an operating system would resolve most of these issues at a stroke. It was at this point, and with this objective, that I formed Quant Network.  

Yet while we have successfully addressed technical interoperability there still remains a real and significant role for regulation and standards in helping DLTs reach full maturity. This issue was highlighted in the 2019 Deloitte Survey and the recent WEF Interoperability series.

But progress in ISO is certainly happening. Today, standards are starting to emerge increasingly rapidly, with 57 countries and organisations working together, coupled with the formal collaboration of different standards bodies and working groups to progress the technology. Some are focusing on technical aspects like IEEE, and others are looking at more specific areas such as ITU-T, while ISO is providing a broader perspective. This is further supported by initiatives from INATBA, the European Commission and the EU, which has established an annual Standards “check-in” to provide an update on progress in development, and to agree focus areas and collaboration opportunities. All in all, it is a journey with strong echoes of Internet development in the 1980s and 1990s, with the emergence of OSI and then TCP/IP. 

And the game-changing effects of these developments are already emerging. These range from the establishment of DLT-based trade corridors which streamline customs processes, through the development of Smart Contracts for faster, more efficient business processes, to the secure transfer of sensitive data, and fast transactions and payments with digital assets. And there’s much more, including rapid evolution of ecosystem interconnectivity, which will lead to national blockchain infrastructures that delivers government services to citizens.  

In a world with Standards and regulation, it seems, innovation flourishes. 

Article by Gilbert Verdian, Founder & CEO of Quant Network

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