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Beyond bitcoin: Blockchain is coming to disrupt your industry
Banking alert | 1 March 2016 | Beyond bitcoin: Blockchain is coming to disrupt your industry
Blockchain has the potential of disrupting the financial services industry. To avoid disruptive surprises or missed opportunities, applications of the technology should be investigated.
What is blockchain?
Blockchain is the distributed ledger technology underlying bitcoin that uses software algorithms to record transactions or any digital interaction with reliability, security and anonymity.
When a transaction takes place, a number of separate computers, connected across the network process the algorithm and verify the transaction. Basic information is stored in the ledger about each transaction - such as sender, receiver, time, asset type and quantity. Each new transaction is mathematically linked to those that came before it, thus the blockchain process ensures validity. Once entered into a blockchain, information can never be erased, thus a blockchain contains an accurate and verifiable record of every transaction ever made.
The combination of the ledger and blockchain technology makes bitcoin, or any other system, a virtual, distributed and decentralised entity requiring no third party to validate the transactions. It is for this reason that bitcoin is often referred to as a trustless system.
Disruption or evolution?
The blockchain technology has the potential of disrupting industries such as financial services, remaking business practices such as accounting and auditing, and enabling new business models.
To avoid disruptive surprises or missed opportunities, strategists, planners and decision makers across industries and business functions should investigate applications of the technology.
For the financial services sector blockchain offers the opportunity to overhaul existing banking infrastructure, speed settlements and streamline stock exchanges. Thus, the shared public ledger has the potential to radically simplify banking by reducing costs, improving product offerings and increasing speed for banks.
The key attributes of the technology include the following:
- Security – hacking is impossible given the ledger is distributed across thousands of computers, reducing server maintenance requirements and improving security for banks.
- Transparency – the sender and recipient of each transactions are recorded and all transactions are publicly available for inspection.
- Privacy – users are anonymous and can move money around instantly and securely. This allows banks to save time and reduces costs on international transactions.
- Risk – currently, if a bank’s system goes down, users are unable to perform transactions. Using the blockchain technology, the bank’s system would continue as normal.
Potential applications of blockchain are limitless, ranging from storing client identities to handling cross-border payments, clearing and settling bond or equity trades to smart contracts that are self-executing, such as a credit derivative that pays out automatically if a company goes bust or a bond that regularly pays interest to the holder.
According to a recent report by Santander, Oliver Wyman and venture capital investor Anthemis, it is estimated that the technology could cut banks’ infrastructure costs for cross-border payments, securities trading and regulatory compliance by $15bn-$20bn a year from 2022.
For big banks, struggling to modernise their outdated IT systems in the face of increased pressure from regulators, digital challengers and cyber criminals, blockchain represents an opportunity to rethink much of what they do and redesign business processes.
How can we help?
Blockchain may be the technology that will change the future of transactions. While it is impossible to know with certainty how this technology will be adopted across industries, it is clear that innovation is likely to emerge in the near future.
Our team will continue to track the adoption of blockchain technology by major banks and innovative start-ups in order to assist you in innovating your business model to ride the fintech wave.