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Although blockchain and its derivative technologies are maturing rapidly, they continue to surface challenges around performance, governance, privacy and regulatory compliance. In this trend, Richard Miller, Deloitte Head of Payments, points out that the speculation around digital currencies and the rise of initial coin offerings, has detracted from the progress being made in moving blockchain use cases out of the lab and into production.
The exciting development is that distributed approaches to addressing existing business needs and creating new services are emerging because they are being enabled by broad-based interest, maturing technology, a supportive funding environment, and improvements in the price-performance of data communications.
In many respects Australia has been a source of leadership. Local organisations have invested in global consortia and local proof of concepts, some of which are taking these forward into production. The ASX is perhaps the most prominent example. It recently announced that it would replace its CHESS system with a blockchain-based system. Standards Australia has also taken a leadership role in defining global standards. And regulators like ASIC have encouraged constructive engagement with blockchain from regulators in other jurisdictions.
Given its position in Asia Pacific, regional applications have also received significant attention. These include use cases that remove friction from cross-border processes such as trade finance or product provenance. Similarly, blockchain-based international payments continue to hold promise as compliance and settlement challenges are addressed. There is also potential to provide a foundation for exchanging data across jurisdictions or organisational boundaries to enable more efficient management of identity, asset and provenance data. To realise the full potential of many use cases, it will be important to ensure interoperability between blockchains as well as legacy systems.
While the technology is maturing rapidly, some of the biggest challenges are environmental. Distributed systems need new approaches to governance and value-sharing. They also need high levels of collaboration and flexibility.
Forming consortia to address common business problems can be complex, even if the value is evident. Standards are developing, but they do need greater consistency. Because it is often unclear how to apply legal and regulatory frameworks, such uncertainty does limit adoption.
That said, there is some really exciting progress in enabling different blockchains to interoperate, de-risking technology selections, and creating new potential use cases.
Business, government, fintechs and others across Australia are taking a balanced and progressive approach. While regulators are stepping in to address questionable ICOs, or non-compliant remittance providers, they are also proactively working on relevant proof of concept projects, and collaborating with industry.
Standards, laws and regulations are evolving to support these new distributed approaches, and in so doing creating new ecosystems and value chains, often across borders or other traditional boundaries. In fact, blockchain’s greatest legacy may not be the technology itself, but the distributed ecosystems, derivative technologies, and environmental changes it is helping create.
To find out more about our digital currencies and the rise of initial coin offerings tech trend for 2018 click here.
Steven is the lead Partner in Deloitte’s Treasury Advisory practice. Steven has over 18 years’ experience in Australia and the UK auditing and advising financial institutions and large corporates on financial risk and finance matters, including financial instruments accounting, in particular IAS 39 and IFRS 9, financial instruments valuations and impairment. Steven leads a national team of 60 professionals with deep experience in financial risk matters including credit risk, market risk and liquidity risk. The team also consists of experts in banking regulations specific to market, credit and liquidity risk as well as regulatory capital. The team also consists of experts in quantitative finance and financial product valuations, modelling and pricing.
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