A few weeks ago I attended an MIT Media Lab discussion on the potential impact of blockchain technology on the health care industry. In preparation for the day I asked around Dell Technologies to determine if there were any pockets of expertise that had experience with either Bitcoin or blockchain technology. I discovered that Dell has already been accepting Bitcoin payments on Dell.com for a couple of years. So I set up a call with Dell.com Product Director Harsh Acharya to get more context in two areas: (a) why does Dell accept Bitcoin, and (b) how is it implemented?
One of the first things I heard in my discussion with Harsh was a validation of what many people have been saying about the benefits of Bitcoin: fiscal agility. When payments are processed using credit card, Paypal, or bank transfer, there are a variable number of third-parties that insert themselves in between the consumer and Dell for payment processing services. One of the main reasons that these third-parties insert themselves into the processing is to validate trust between two parties that don’t know each other. The end result is that often times Dell does not immediately receive the funds until this layered processing is complete.
This reality is highlighted by authors Don and Alex Tapscott in their book Blockchain Revolution. As part of their chapter on reinventing financial services, they highlight a quote from Ripple CEO Chris Larsen:
“In the corresponding banking world, where you have a sender in one network and a receiver in another, you have to go through multiple ledgers, multiple intermediaries, multiple hops. Things can literally fail in the middle. There’s all kinds of capital requirements for that.”
What I believe Larsen is saying is that as the capital gets tied up in the processing of the payment (causing a delay in the receiver’s receipt of the funds), fees are also increasing as a result of the CAPEX/OPEX costs that occurs in support of payment processing.
According to Harsh, DELL’s implementation of Bitcoin has resulted in only one payment processing third-party: Coinbase. Dell’s Bitcoin wallet is held by Coinbase. When a customer buys a product from Dell.com, their bitcoins flow across the blockchain protocol. The transaction is verified as part of the protocol, and Coinbase then pays Dell in dollars. While it’s true that Dell could bypass Coinbase completely by implementing their own Bitcoin wallet, they would then also have to get into the foreign currency conversion business (not one of Dell’s core competencies)!
According to the Tapscotts, there are 6 key reasons that blockchain technology will “bring about profound changes” to the financial industry, and two of them are evident in the Dell.com use case:
- Speed: “the bitcoin network takes an average of ten minutes to clear and settle all transactions conducted during that period. Other blockchain networks are even faster, and new innovations, such as the Bitcoin Lightning Network, aim to dramatically scale the capacity of the bitcoin blockchain while dropping settlement and clearing times to a fraction of a second”.
- Attestation: “Verifying and establishing trust is no longer the right and privilege of the financial intermediary”.
The second point about attestation is revolutionary: usage of the blockchain protocol within the Bitcoin mining network results in a trust guarantee that no longer requires third parties.
The news is not all bad for existing payment processing systems as the benefits of blockchain outlined above also come with some trade-offs. In future posts I will highlight these trade-offs and take a look at the potential impacts on IT architectures.
Steve
Dell Technologies Fellow
