International Business Machines Corp. (IBM) announced Tuesday that it would donate 44,000 lines of blockchain​ code to the Hyperledger Project, providing an open source foundation for building distributed ledgers.

The move follows a string of announcements that major financial and technology firms are exploring the blockchain, the software that undergirds bitcoin​. The creation of an open source blockchain program – in addition to bitcoin's own – is likely to accelerate the adoption of distributed ledgers in a number of industries.

IBM has said that its blockchain will function in tandem with its Watson Internet of Things platform, enabling devices to update distributed ledgers with information from sensors, such as barcodes or temperature readings. They will also be able to update or validate smart contracts. To promote its new blockchain offerings, the company will set up "garages" in London, New York, Tokyo and Singapore where customers can test out its software.

Blockchain Fever

A year or two ago, the term "blockchain" was inextricably bound up with bitcoin, a digital currency that had a mixed reputation at best. Outside of a hard core of backers, it was mainly thought of as a medium for black market transactions in the deep web (i.e., Silk Road), a sink hole for exuberant speculators (Mt. Gox), or a badge of honor for eccentric libertarians (your uncle in North Dakota). In any case, it was not the sort of business one would associate with names like JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Nasdaq Inc. (NDAQ).

But if bitcoin retains certain unsavory aspects of its reputation, the blockchain has become the poster child of innovation in banking and finance. JPMorgan and Goldman Sachs have teamed up with seven other major banks and the fintech firm R3CEV LLC to explore blockchain applications. Nasdaq is using a blockchain to track ownership in private companies. Microsoft Corp. (MSFT) is incorporating the blockchain into its Azure cloud computing platform.

What sets IBM apart is that it is opening up its blockchain source code for any and all to make use of. This action will probably help establish a standard for blockchains, aside from the bitcoin blockchain itself.

Other companies that have explored blockchain technology have come under fire for trying to privatize a technology that is by nature public. Jeremy Allaire, writing for Re/code, compared banks' and others' efforts to develop their own, ex-bitcoin blockchains to early-90s attempts to build "permission Internets" using "the technology behind the Internet," when of course the valuable innovation was the open, public Internet itself.

What Is a/the Blockchain?

A blockchain is a distributed ledger, a record of transactions that is nearly tamper-proof by virtue of the way "blocks," or groups of transactions, are added onto the existing "chain." Until recently, the only blockchain (aside from those of a few obscure "altcoins") was the bitcoin blockchain. Bitcoin is a digital currency that was created by an anonymous programmer in 2008, whose nome de code is Satoshi Nakamoto.

The level of security afforded by the blockchain is interesting to banks for obvious reasons, as well as other actors such as governments. Honduras is experimenting with a blockchain for its land titles, to prevent corrupt police or local officials from evicting rightful tenants. 

The ledger only works if it is "distributed," however, meaning that a large number of parties have a stake in the chain. If only one party is maintaining the chain, or if one party has over 50% of the stakeholders' total computing power, it can mangle the hashes to its heart's content. For that reason, some have wondered how effective a "permissioned" blockchain can be. 

The Bottom Line

IBM is only the latest in a growing group of companies to announce blockchain initiatives, but by making its software open source, it will likely help speed up blockchain adoption in a number of industries. The emphasis on compatibility with smart contracts and the Internet of Things is also promising, and could help restore IBM's reputation, long since ceded to younger competitors, as an innovator.

Disclosure: The author has received compensation for writing about bitcoin and the blockchain for Nasdaq.com in the past.

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