What a year can do for blockchain
In the speech balloon image via Shutterstock
Blockchain adoption is gaining momentum not only in banking but also in the enterprise. The first sign that 2016 was going to be a good year for blockchain was the amount of money invested into blockchain companies: almost $300 million in the first half of 2016. The second sign was that blockchain consortia began to spring up like mushrooms after the rain. But will it be smooth sailing from here on?
In early 2016, most executives were reluctant to have the blockchain conversation for fear that this technology won’t gain momentum. Now, partnerships and consortia spring up like mushrooms after the rain and the cherry on top is Gartner’s technology trends for 2017, which claims that blockchain has substantial disruptive potential across industries.
Blockchain and distributed-ledger concepts are gaining traction because they hold the promise of transforming industry operating models in industries such as music distribution, identify verification and title registry. They promise a model to add trust to untrusted environments and reduce business friction by providing transparent access to the information in the chain. While there is a great deal of interest the majority of blockchain initiatives are in alpha or beta phases and significant technology challenges exist.
Despite the obvious challenges, corporate players and banking giants are pushing this technology forward through experiments (behind closed doors) to test its applicability, possibly driven by the “good reviews” this technology has received: in an “Emerging Theme Radar” note sent to clients in late 2015, Goldman Sachs said that “the Blockchain, can change… well everything.” Meanwhile, William Mougayar, author of The Business Blockchain, opined that blockchain is as innovative as the internet.
Blockchain at a glance — 2016
In August 2016, the World Economic Forum released a report titled The Future of financial infrastructure: An ambitious look at how blockchain can reshape financial services in which it claims that blockchain will play a central role in the global financial system. 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.”
Giancarlo Bruno, the head of financial services industries at the World Economic Forum, told The New York Times that the technology behind Bitcoin will become “the beating heart” of the finance industry. The report revealed that blockchain has the potential to “drive simplicity and efficiency by establishing new financial services infrastructure and processes” and is likely to “form the foundation of next generation financial services infrastructure in conjunction with other existing and emerging technologies.”
A couple of months later, Japanese IT company Fujitsu announced that is experimenting with blockchain. Fujitsu Laboratories Ltd. and Fujitsu Laboratories of America, Inc. have developed two blockchain-based technologies to “safely and securely handle confidential data between multiple organizations:”
A transaction restriction technology based on pre-established policies to restrict trading, such as by restricting users, and a document encryption technology, which allows only relevant parties who hold multiple distributed keys to securely access the information recorded in the blockchain.
These two technologies are meant to prevent both the misuse and abuse of keys (thus making it safer to use blockchain) and to develop a workflow “where documents are acknowledged by collective decision-making or between specified organizations, or where they can be restored when keys are lost.”
Moving forward with blockchain
U.S. Federal Reserve governor Lael Brainard said in a speech earlier this year that even though she was “optimistic” about new technologies such as blockchain, they “must be robust in practice, not just in theory, to attacks on security, and must be able to maintain appropriate confidentiality for records and data.”
Indeed, there is some potential that the new technologies could enable improved authorized access to certain data records in a much more efficient and comprehensive manner than has previously been possible, thereby potentially reducing costs associated with complying with the Bank Secrecy Act.
Governor Brainard emphasized that the U.S. Federal Reserve must “give promising technologies the serious consideration they merit, seek to understand their opportunities and risks, and actively engage in dialogue about their potential uses and evolution.”
Plus, new research commissioned by SIX Securities Services showed that more than three quarters of financial organizations are now experimenting with blockchain technologies. The study revealed that 32 percent of respondents have created “a proof of concept, while 1 in 5 are piloting a specific product or service. 14 percent of respondents said they have set up a Blockchain-focused innovation lab, while 12 percent have partnered with a blockchain company.”
With these numbers, it’s safe to say that blockchain is entering a new year with high expectations.