In the first part of our blog series on the potential of blockchain technology, we touched on the sheer scale of investment being poured into the space by big banks.
This month saw Goldman Sachs, JP Morgan, Credit Suisse, and six other major financial institutions enter into partnership with New York-based startup R3 to establish shared standards for the use of blockchain-style architecture in financial services. They are not the only prominent players taking an interest.
Santander recently published a paper highlighting some of the many uses for the blockchain, and are reportedly focusing the bulk of their $100 million FinTech investment fund on making them a reality. According to the bank’s head of innovations, Julio Fora, “…the first obvious space to explore all of this in is payments, particularly international payments.” Elsewhere, blockchain-focused startups such as Coinbase and Circle, have attracted sums of $105 million and $76 million from venture capitalists respectively. Further evidence of the flurry of interest is epitomized by Barclays, who have entered partnerships with blockchain entrepreneurs such as TechStars, Safello, and Everledger. It seems more and more players are heeding The Economist’s advice to “…keep one eye trained on developments in the cryptocurrency space.”
As is often the case when incumbent institutions dip their toes in the waters of innovative technology, however, critics are close at hand.
For starters, say some, the term “blockchain” has no business being bandied around by banks. As the enabling force behind the Bitcoin digital currency, there is an argument that utilizing the technology for anything other than verifying cryptocurrency transactions de-centralized from banks and government is not really utilizing it at all. As one financial commentator puts it, “Banks can’t really pick and choose a small subset of use cases and claim they are embracing the revolution.”
Creators of “private” blockchain incarnations rebuff the claim. “…the debate is largely semantic,” concluded one article from earlier this year, “…even private network providers, including Hyperledger and Ripple Labs, concede that they aren’t really in the blockchain business.” The article also quoted two private ledger entrepreneurs, who said the term blockchain is “just the vernacular” and suggested “If you look at the blockchain as using cryptographic signatures to link the ledger from one point to the next, then the concept of a private blockchain makes perfect sense.”
Even if the definition of what really constitutes a blockchain is pliable, there are those who believe the functionality of any such system poses bigger questions for banks. “…there is a view incumbents could be rendering themselves unnecessary,” stated a Financial Post piece from last month, before citing the thoughts of a financial analyst, who queried; “If Barclays, for example, is just using the blockchain to run its banking services, why does Barclays exist in the first place?’”
For now though, banks are continuing to pour money into blockchain research and development—no doubt eager to create an in-house version of the architecture that avoids their extinction at all costs. As they do so, the primary area they expect the technology to impact is payments.
Outlining exactly why payments stand to be so dramatically enhanced by the blockchain, Currency Cloud says transactions through a shared ledger system could avoid delays and related charges by being programmed in the same way as a piece of code—running over the internet “in near real-time without the need to route the payment through a complicated trail of banks and clearing houses.”
Our last post highlighted the speed, savings, and security enhancements that could come from adopting blockchain protocols, and you don’t have to look far on the web to find industry insiders underscoring the possibilities in payments. From enabling “lightning fast, decentralized” transactions that “simplify and accelerate banking processes,” to making “fraud more difficult,” the blockchain is being heralded as an “innovation more substantial than the internet,” that boasts “truly life-changing applications.”
So will the technology—in whatever forms it ultimately assumes—fulfill the expectations of its many enthusiastic proponents? Well, one thing is for sure; a lot of people with a great deal of money invested are banking on it.