IBM Adapts Bitcoin Technology for Smart Contracts

Tech giant developing its own version of blockchain technology, plans to release open source software within next few months

International Business Machines Inc. thinks the technology that underpins the bitcoin digital currency can do a lot more than support cash 2.0. Within the next few months, the venerable tech giant plans to release open source software that could be used to create digital contracts that—like bitcoin transactions—would be recorded publicly and securely on a world-wide computer network.

IBM is zeroing in on a technology called blockchain, which serves as bitcoin’s online ledger. Blockchain allows the bitcoin network to track the currency’s movement from one online wallet to another. But it could be used to log other types of transactions.

“Blockchain, as a technology, is extremely interesting and intriguing,” said Arvind Krishna, senior vice president of IBM Research.

Over the past year, IBM researchers have been developing their own version of blockchain, which the company said could be used to create secure online contracts. Mr. Krishna isn’t sure who, if anyone, would embrace a project the company so far regards as experimental. But it could log transactions between banks or international businesses, or—more interestingly—let banks and businesses share the same system of record. For example, when a Chinese supplier and a U.S. buyer agreed that a product had been delivered, a U.S. bank could pay the supplier instantly over the Internet.

IBM isn’t the only company testing the blockchain’s potential in what have been called smart contracts. and Inc. last month introduced blockchain-based platforms designed to speed up and simplify trading securities.

IBM in January announced an earlier blockchain-style experiment, called Adept, designed to monitor connected devices. The new effort is a separate endeavor.

IBM has a history of legitimizing open-source projects among its corporate customers. It helped move the Linux operating system and the Apache Web server into the mainstream in the late 1990s. Mr. Krishna hopes the new technology will do the same thing for blockchain. The company has devoted dozens of researchers to the project, he said. They are modifying the original bitcoin code to operate without currency, ensure that contract details remain private and make it easier for companies to embed business rules into their smart contracts—for example, automatically paying for a package upon delivery.

One of IBM’s challenges is building a system that anyone can participate in while also thwarting spam or abuse, said Peter Van Valkenburgh, director of research at Coin Center, a bitcoin advocacy group.

IBM says it is aware of the issue and is working on solutions. For example, the company could have its ledger managed by a consortium of businesses.

Using open source software to shake up the world of contracts is no simple matter. But the payoff could be huge, Mr. Krishna said.

“I want to extend banking to the 3.2 billion people who are going to come into the middle class over the next 15 years,” he said. “So I need a much lower cost of keeping a ledger. Blockchain offers some intriguing possibilities there.”

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