Going from an underground cult-like technology for dispersing bitcoins, blockchain has now moved from out of the shadow of currency exchange to mainstream banking.
Blockchain has become the new cure-all to your third-party information retrieval hangover! The shared ledger technology that allows any participant in a business network to see the system of record, records and stores every transaction that occurs in the network, creating an irrevocable and auditable transaction history.
Blockchain is set to have a transformative impact on a number of industries, including financial services. The technology may still be in its infancy, but already we are seeing initiatives underway that hope to put forward blockchain as an industry-leading solution that will offer important benefits in the context of the transfer of assets within business networks.
As with any new and promising technology, it's important to note the limitations of putting it on a pedestal too soon. While expert opinion varies about exactly how, when, and at what speed blockchain technologies will disrupt the financial services industry, it is generally agreed upon that it will bring about noticeable changes to the efficiency of the industry.
Current state of the industry:
Currently, participants in business networks each maintain their own traditional ledgers to record transactions between them within their ecosystem. This typically means a lot of file sharing and swapping data. What banks today are doing are essentially running databases and recording claims against them. With thousands of banks in the world, all maintaining similar but separate databases, that makes for a lot unnecessary expenses.
Potential for the future:
But blockchain has the potential to provide a common, ubiquitous ledger technology, reducing the friction caused when intermediaries use different technology infrastructures. Having a universal ledger system used by many institutions would help drive down cost and create more open access.
Put another way, the initial introduction of blockchain will bring efficiency in the short-term, and has the potential to completely rewrite the underlying infrastructure over time, more easily connecting counterparties in innovative network configurations rather than the more centralised models we're seeing today.
Solutions for problems in the present:
Grandiose dreams aside, for now it is essential to apply blockchain where there is a genuine problem to solve. One of the most frequently used examples are transactions that are rooted in the physical world; where there is plenty of paper (which we can easily imagine being digitalised), and where a number of parties have to do a similar action but in sequence to enable a transaction to be processed. Client onboarding is a great example of this.