[Bit]coin flipping: Blockchain limitations
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The blockchain technology is the perfect recipe for disruption. If only the FinTechs and banks learned to play nice. A new report sheds some light on blockchain’s limitations and points out that this technology is not “a magic potion for everything.” Learn all about the obstacles that prevent the blockchain technology from being implemented across all industries.
Infosys Consulting joined forces with HHL Leipzig Graduate School of Management and released a white paper titled Blockchain Technology and the Financial Services Market in which they provide a “high-level business case viewpoint on the potentials and limitations of the blockchain technology.”
After interviewing 33 FinTech and banking specialists, contacting 81 experts and going through over 70 publications, Infosys Consulting and HHL Leipzig Graduate School of Management concluded that blockchain technology will “reach mass suitability within the next five to 10 years.” Their conclusion may not be something that we haven’t heard before (Spiros Margaris, world’s No. 4 of Top 20 Social Influencers in FinTech, told JAXenter three months ago that blockchain will go mainstream in the next five to 10 years), but discovering its limitations may help pave the way for broad adoption.
Yes, this technology has potential in a few financial services areas and yes, investment banking and transaction services are the darlings of blockchain applications. Still, according to the white paper, the blockchain technology is not a one-size-fits-all solution and is it (for now) “not sufficiently regulated.” Plus, there is a strong link between the broad implementation of blockchain and the collaboration between FinTechs and banks.
Blockchain should not be considered a magic potion because it can only work (and achieve its full potential) if “a large network and low transaction volumes are given.” The white paper points out six blockchain limitations:
- due to the fact that it has a complex verification process, the blockchain technology should not be used for massive transactions
- it should not be considered an option when there are not enough members (due to network approach)
- the concept’s complexity increases its distribution
- IT instability can trigger dire consequences
- one of the reasons why banks have taken their time to adopt the blockchain technology is the possible loss in revenues
- lack of legal regulations gets in the way of broad implementation
One should be cautious about the blockchain technology and its implementation across industries, but there’s no denying that it also has a few aces up its sleeve. First, it is not limited to the exchange of monetary assets. Second, one cannot ignore the fast execution and the low transaction costs. Plus, decentralization eliminates the need for a trusted third party. Transparency and high level of security are just a couple of potentials that may convince banking and FinTechs to adopt this technology in the near future.
Banks + FinTechs = blockchain broad adoption
According to the white paper, banks are joining forces with the FinTechs because they need to understand the technology and establish additional internal research labs. A broad implementation of the blockchain technology is not around the corner since its limitations have not been fully addressed. However, “the attempts at collaboration between start-ups, banks, consultancies and authorities are promising.”
Read the entire white paper here.
Blockchain receives huge pat on its back
One cannot deny the blockchain limitations that prevent companies and banks from jumping on the blockchain bandwagon, but it’s also true that one cannot ignore the number of reports which point out the benefits of this technology. One such example is the World Economic Forum which released a report in mid-August titled The Future of financial infrastructure: An ambitious look at how blockchain can reshape financial services.
The report suggests that blockchain “has the potential to ‘live up to the hype’ and reshape financial services.” However, in order to truly occupy a central position in the FinTech world, the technology behind Bitcoin must be paired with “other emerging technologies, regulators, incumbents and additional stakeholders.”
Is blockchain ready to ditch its limitations and assume a bigger role in the financial arena? Let’s discuss.