Could 2016 be the year of the blockchain boom? With reports of banks and bankers actually using the technology, there is a chance that negative attitudes towards blockchain could be dispelled in the near future.
Dominant fintech startup SETL announced last week that they have used this technology to create a platform where both buy-side and sell-side institutions can trade on a private and secure network. Peter Randall, CEO and co-founder of SETL told Business Insider that at the moment, blockchain is all talk. “What it’s really responding to is the fact there are a lot of people out there talking about it but they’re talking about it because they haven’t actually got anything to show. We have both an enormous amount of experience in how to launch projects like this but also an enormous amount of experience in terms of actually having working prototypes,” Randall said.
With SETL now being able to conduct tens of thousands of transactions per second and billions of transactions a day, banks would be silly not to jump on blockchain wagon. While many are, risk is an underlying concern, as it is with any new technology or product. bobsguide spoke to Max Speur, chief operating officer at SunTec earlier this year about the digitalisation of banking and he explored how core banking systems could be the lynchpin in the evolution of better service for customers. However, with many reports revealing that blockchain can offer a secure alternative to current systems, this could also be what is needed to keep data threats at bay.
“I see blockchain technology catering for a niche market because I don’t think that it is capable of processing high volume transactions, but the tech is secure,” Speur said. With the UK government’s advocacy of blockchain technology in the UK Fintech 2020 manifesto released by Innovate Finance earlier this year, the country is set to “unlock the full potential of this technology.” Sir Mark Walport, chief scientific adviser to the UK Government detailed how the current data management systems are large centralised systems with a high cost single point of failure, and this has to change.
“Distributed ledgers are inherently harder to attacks because instead of a single database, there are multiple shared copies of the same database, so a cyber stack would have to attack all the copies simultaneously to be successful,” Sir Walport said in the government report. Business Insider explains the difference between the current database infrastructure and the new blockchain version as the difference between Word and Google Docs. “The technology uses complex cryptography to stop people changing transactions once they’ve been signed off by members of the network,” the report read.
In addition to the UK government, the Financial Services Regulatory Authority (FRSA), part of the Abu Dhabi Global Market (ADGM) is planning to form a fintech sandbox where startups would be able to operate under a flexible regulatory framework. The paper on the announcement states that the authority intends to build a conducive fintech environment in Abu Dhabi and position the ADGM as a fintech hub. Alongside this, the paper implies that blockchain startups are encouraged to join the programme as the project has the potential to promote significant growth and efficiency.
“The advent of robo-advisers that offer lower costs, simplicity and real-time portfolio analytics and monitoring; or leveraging on the application of blockchain technology and distributed databases to facilitate price discovery, smart contracts, settlement of financial transactions, etc. that may lead to safer/better products, and higher productivity and growth,” the report read. According to Coindesk, a UAE-based commercial IP lawyer with Simmons & Simmons, Raza Rizvi believes that this enthusiasm for blockchain is to attract enterprise financial institutions.
“No doubt the two independent initiatives will bring out the best in each other and enable the UAE as a whole to lead the way in the fintech sector and usage of blockchain technology in the Middle East,” Rizvi said. Blockchain has also made an impact in other parts of the world as Chinese insurance firm Ping An have joined the R3 blockchain consortium to join other financial institutions in the mission to create standards for the technology. CEO of R3 David Ruther said that this is an important milestone for both companies and the global markets.
With the chairman of SETL being Sir David Walker, who is the former executive director of the Bank of England, former chairman of Barclays, former chairman of Morgan Stanley International and former deputy chairman of Lloyds, this indicates that bankers are interested in blockchain. A better example can be found in Blythe Masters, CEO of Digital Asset Holdings and former senior executive at JP Morgan. At Money2020 Europe, she spoke about how blockchain is always a subject that leaves people thinking they a lot about the subject, but after they’ve processed what they’ve been told, they think they know nothing.
Masters predicted that “we will see this technology being deployed in a commercial setting, but it will be years before it becomes mainstream.” The tech will also offer opportunities to regulators as they will have a direct window to the shared ledger, so with this, they are “already armed with incredible power”. Masters also compared the advent of blockchain to that of the internet. “What came out of the internet were a few behemoths and a few deaths, but the vast majority of companies had to adapt.” What this revealed was that blockchain will dominate the financial industry in the near future, and banks and other organisations will have to adapt as a result. “The financial industry is a large ocean to boil, but blockchain is changing the world as we speak”.
Santander are also experimenting with blockchain and claim to be the first UK bank to be trialling it in an iPhone app which reduces the cash transfer time by days, according to CityAM. Since Santander InnoVentures’ investment in startup Ripple, the bank has been working on how the digital ledger can be used in finance. “The need for finance has evolved from providing a physical pound in your pocket or card in your purse, where you pay at a till, to being seamlessly integrated into a new, always on, connected lifestyle,” Sigga Sigurdardottir, head of customer innovation at Santander said.
bobsguide spoke to Santander Innoventures boss Mariano Belinky about the blockchain buzz. “There was a bit of a transition around SIBOS 2014 when people started having better conversations about digital currencies but also the underlying technology. Then the Treasury came out with a paper encouraging banks to look at distributed ledger. Up until then banks thought it was too risky to get involved. R3 came about and the whole thing started accelerating throughout 2015.”