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Blockchain drives innovation

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20 . Februar  2018

Matthew Key

Posts nach Autoren: Matthew Key, Head of Customer Innovation, Global Banking and Financial Markets, BT.

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With the projected launch of Bitcoin Futures, all eyes are on the distributed ledger technology (DLT) upon which it is based, and its potential to improve applications and systems throughout many industry sectors.

Blockchain is a public ledger that records all the transactions and movements of an item such as Bitcoin. The technology can be applied electronic transactions and other services like physical goods, by tracking products through a supply chain, for example.

Blockchain and the financial services industry

We are likely to see the emergence of some functions, solutions and services based on blockchain in the banking and insurance markets in the next year or so. There are a number of hot spots for blockchain innovation in banking, and particularly in the capital markets. These include improving current inefficiencies in post-trade clearing, processing international payments, and SME lending. There are numerous currency services that could benefit from blockchain as well as other sometimes esoteric applications from oil trading to risk ledgers. The major promise of blockchain is its ability to process multiple transactions very quickly. For example, when it comes to payment processing and corporate bonds, a distributed network of computers can potentially process transactions in less time, with more resilience, and more securely than conventional systems.

In the insurance industry, a distributed ledger such as blockchain can help to manage complex scenarios involving multiple parties; for example, a building owner managing a complicated matrix of insuring 50 office rental units rented via Airbnb for short-term lets of a week to a year. Blockchain can help by keeping record of all of these small transactions in a central place with full visibility to all involved.

A lot is happening in the retail banking space as well. It is believed that at least two large European banks will introduce consumer blockchain products to the marketplace in the next year or so that are likely be presented as ‘new generation’ banking services delivering greater efficiency.  

The progress in the banking industry is helped by the R3 initiative – a body consisting of over 80 banks, financial institutions, regulators, trade associations, professional services firms and technology companies from across the world. This has been set up to get a collective agreement on how banking systems in the blockchain world should co-exist with legacy systems. A key function of R3 is to get endorsement from the various legal and regulatory bodies from around the world, which do seem open to blockchain and are actively encouraging development. Although the initiative has over 80 members, it should be noted that leading influences such as Goldman Sachs have left recently. The financial technology (fintech) sector is certainly buoyant about the possibilities in the long term.

Industry-wide potential

The manufacturing supply chain is another space where blockchain can simplify complex and time critical functions – tracking components used in aeroplane manufacture from multiple locations, for example. Providing immutable and multiparty authentication of provenance and ownership of high-value items, it has also been used in diamond trading and art sales.

A really exciting example where blockchain can prove transformative is in healthcare., where personal records need to be kept secure but made available quickly when needed. Blockchain can revolutionise this process by securely keeping a central record and providing ID and permissions so only the relevant information is released to the right people.  

However, the real life-changing potential of blockchain is in the area of benefit and aid distribution. Some charities estimate that 30 per cent of intended aid is ‘lost’ as it is passes down the chain, but DLT could help aid distribution by enabling quick authentication of transactions and getting money to an approved list of people acting in the field, with greater transparency, as long as they have web connectivity.

It is going to take a while for blockchain to become mainstream. But many of the building blocks are already in place, though some may need strengthening to become enterprise ready.

Blockchain requires secure global networks to function properly, with inbuilt resilience. For high value transactions, reliable and trusted networks will be the only suitable option. And those networks will need distributed nodes and storage capability potentially linking to cloud-based systems.

While there’s a real appetite to explore the potential of blockchain in financial markets, some organisations still have concerns about its ability to ensure anonymity and transparency in such a highly regulated industry. Some also question the scalability of the technology and its performance under stress, and that is where major players, such as BT, Intel and IBM – as well as smaller Fintechs – are driving innovation to find solutions.

Cobalt, the FX post-trade processing network based on distributed ledger technology, has joined the BT Radianz Cloud – the world’s largest financial community. Organisations can now access Cobalt’s private peer-to-peer and blockchain services via their highly secure and resilient Radianz Cloud connections, helping firms reduce cost and operational risk.

Find out more about securing applications with blockchain.