Overcoming the blocks to blockchain: banks and financial institutions get practical

According to many banking experts, Blockchain is set to revolutionise banking in the same way that email revolutionised communication. After all, its practical applications can impact everything from international money transfers to identity verification. However, blockchain has served up a quiet revolution so far, still waiting for its moment to blow apart decades-old infrastructure and bring banking into the digital age.

Overcoming the blocks to blockchain: banks and financial institutions get practical

Presented by Kisaco Research April 2016  

According to many banking experts, blockchain is set to revolutionise banking in the same way that email revolutionised communication. After all, its practical applications can impact everything from international money transfers to identity verification. However, blockchain has served up a quiet revolution so far, still waiting for its moment to blow apart decades-old infrastructure and bring banking into the digital age.  

Usually the preserve of cryptocurrencies such as Bitcoin, banks, insurance companies and retailers are simultaneously eager and cautious to test the waters.  According to a report co-written by Santander, adopting this digital ledger could save companies up to $20 billion dollars.   

Furthermore, this cryptographically secure public ledger makes the process highly transparent, making it impossible for third parties to fiddle the numbers. This can only be a good thing for customers as blockchain technology makes transactions more efficient and secure.   

Yet testing and implementing blockchain technology remains in its infancy. While the majority of major banks and financial institutions understand the advantages of leveraging the technology, it is held back by challenges including security, regulation and scalability.   

However, everyone from major IT companies such as IBM and Microsoft to major banks such as ECB, Deutsche Bank and Barclays are beginning to look at the advantages and disadvantages of adopting blockchain and finding pragmatic ways of implementing it.   

Big promises and baby steps  

Almost every major bank, financial institution and large technology company is enraptured with the possibilities of blockchain. Indeed, the major companies, fired up by bright startups, have begun to see blockchain technology as the inevitable future of banking and data transactions.   

In 2015, the Nasdaq stock exchange and UBS used blockchain technology to trade shares for the first time. Barely a month or week goes by without a major company declaring their intentions to develop blockchain technology.  

Santander, Barclays, UBS, JP Morgan, HBS, ECB, Deutsche Bank and more have all announced their intentions to test and develop blockchain applications. Large technology firms are providing ‘blockchain as a service’ environments. IBM launched an open source blockchain last year that is known as the Open Ledger Project, which is overseen by the non-profit Linux. Microsoft launched Ethereum Blockchain as a Service (EBaaS) for its Enterprise clients and developers that want to create SmartContract applications. 22 banks including HSBC, Citi and Morgan Stanley are investing in digital ledger start up RV3CEV in order to develop blockchain applications.  

The jury’s still out  

Blockchain technology has been around since 2008, so why is it taking it so long for the banking industry to adopt it?

Firstly, banks are struggling to determine whether blockchain technology is a cost-cutting solution or a costly distraction.   
Huge question marks hang over the security of blockchain. Some argue that given the decentralised nature of the public ledger, where there is no need for a middle man, it will be more difficult to settle disputes. Problems are easier to fix on a centralised system and the more decentralised the system, the more difficult it is to control.  

Furthermore, there are huge technological challenges that need to be overcome before blockchain applications can be implemented.  

Can blockchain withstand the huge number of transactions that need to be delivered as part of a big bank’s daily grind?  

As yet, the scaleability of blockchain technology needs to be proven.  

Getting regulators’ stamp of approval is also an uphill battle. As with all radical re-hauls of existing infrastructure, it is not clear where governments stand on blockchain technology and what companies must do in order to comply with existing policy. Clarifying and negotiating government regulations on blockchain technology is a lengthy that can delay even the speediest technological solutions.  

Compounding the above issues, there are few proven best practices for developing the technology. Companies are taking different approaches. Is it better to partner with and invest in start-ups or to develop an in-house ledger? Who should have access to it? The laboratory of blockchain experiments is busy but fragmented.  

In an article by the Financial Times, Hyder Jaffrey, who heads up the blockchain team at UBS, argued that “This isn’t going to happen with everyone working on their own: it’s got to be collaborative.”   
 

A new collaborative congress to cut through the white noise 

As it stands, blockchain technology remains in a nascent and experimental stage. To help companies cut through the white noise and make decisions based on solid evidence, Kisaco Research is holding the inaugural European Blockchain Congress in London. The event is aimed primarily at helping business executives understand how blockchain can be leveraged in practical contexts.  

Big players such as Barclays, Nasdaq, Consensys and UBS will talk about their experiences using blockchain technology, divulging what has worked and what hasn’t. The two day conference will be packed with sessions dedicated to presenting case studies, defining common industry standards and discussing the future of regulation.    

After all, with the huge amount of activity in the space but with sluggish implementation, it’s vital for companies to understand the advantages and disadvantages of blockchain technology.  

Conferences such as the European Blockchain Congress will help companies sift through the revolutionary rhetoric and look at what’s been tried, tested, and most importantly, what works. They will also encourage greater collaboration between stakeholders, making it easier for companies to get a clear overview of the industry and move it forward.

2016 - the year blockchain makes it big? 

Since 2014, it seems as if every year will be the year that blockchain makes it big. But 2016 may yield its most effective results yet: testing has begun in earnest and with greater communication and cooperation between banks and financial institutions, the blockchain revolution is likely to gain modest ground this year.  

As long as the cost-cutting advantages of blockchain remain high, so will the appeal of blockchain technology. 2016 may not be the year digital ledgers replace centralised ones, but it will certainly be the year that blockchain discourse moves beyond the hype and becomes getting practical.  
 

About Kisaco Research and the Blockchain Congress Series

The European Blockchain Congress is taking place April 27-28, 2016 at the Doubletree by Hilton- Docklands Riverside, and is a platform for professional and industry leaders from Enterprise, Financial Institutes and the Financial Services Industry to assess the practical uses of the distributed ledger.  Visit the website at www.europeanblockchain.com for the European event or go to www.blockchaincongressusa.com for more information on the North American congress.

Interested in blockchain technology and distributed ledger?  

Find out more about our Global Blockchain Congress Series  
April 27-28, 2016 | London, UK | www.europeanblockchain.com  June 15-16, 2016 | New York, NY | www.blockchaincongressusa.com    
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