The technology behind Bitcoin is disrupting the global financial services industry. How will Blockchain reshape the financial services industry and the global banking industry?
Blockchain 101
If you have heard of Bitcoin, the popular digital crypto-currency, then you have heard of the powerful technology that underpins Bitcoin, “Blockchain.” Not to be confused with any speculation regarding Bitcoin’s future, including whether or not the controversial digital currency is a bubble, blockchain has a definite and promising future.
The blockchain technology is gaining even more attention throughout the world as research and development continue to inspire more companies to invest in blockchain solutions. Especially as more start-ups release blockchain technology, large companies are taking notice of this threat and are considering many strategies on how to ease disruption. Globally, people are saying that blockchain will change the world in a similar way that the internet did.
Blockchain, in simple terms, is a technology that allows two untrustworthy peers to make a verified transaction (a binding contract) without a middleman. The blockchain technology removes the need for a middleman due to people being able to make peer-to-peer transactions without the risk of their data being breached. At its core, a blockchain adds trust into any given network and is the ultimate computer that never stops. Once launched, the blockchain never turns off and works relentlessly to ensure transactions are anonymous and secure.
So why should you care? Blockchain has the potential to change the framework of virtually everything. In essence, blockchain is a shared and trusted public ledger that everyone can inspect, but no single user can control. Birth and death certificates, insurance claims, voting, supply chain, healthcare, finance, and the government will all be disrupted by blockchain technology. As blockchain become more efficient, corporations will be faced with having to give up control of their lists and data, which means a shift of power is likely to occur. Blockchain enthusiasts also believe the technology will disrupt global politics because they are convinced it will replace dysfunctional decision-making in governments.
The Banking Industry
According to a study by IBM, 91% of banks will be investing in blockchain solutions by 2018. Banks across the world are using many resources to learn more about how blockchains are impacting the market. Banks that are currently operating on blockchain technology are being viewed as “trailblazers” within the industry, and are inspiring for daring to break through barriers. Roughly 15% of the 200 banks surveyed by IBM expected to have a commercial blockchain solution by the end of 2017. These banks’ investments have created new business models and introduced their companies to new markets. More importantly, these banks are investing in the areas where they specifically anticipate future disruption and will be the ones to benefit from the reduced costs and risks. A study. by both The IBM Institute for Business Value and the Economist Intelligence Unit, found that the industry is adapting to blockchain technology much faster than originally anticipated.
With 15% of banks already having commercial blockchain solutions, it is expected that by 2020, a total of 75% of banks will have blockchains in commercial production. The “Trailblazers” who have already invested in blockchain expect friction to be reduced in the following categories: Interaction (transaction costs, inaccessible marketplaces), Information (imperfect information, inaccessible information, information risks), and Innovation (restrictive regulations, and invisible threats). Among the trailblazers’ biggest benefits of using blockchain, they identified the following: reference data, retail payments, and consumer lending.
The Trust Machine
Despite blockchain being considered a “disruption” for the banking industry, it is far from being negative. Blockchains promote trust throughout organizations. The access to blockchain technology will allow not only the wealthy and much larger organizations to thrive, but also the small digital start-ups as well.
When regarding trust, blockchain can be used to help the overall reputation that banks have. By using this technology, banks can build trust between customers and themselves through digital transactions that will lead to loyalty and long-term growth. For the banks who have already taken advantage of blockchains, you can expect for them to be at a great advantage against the rest of their competition. However, other banks who have not invested in blockchain should not feel that they cannot catch up. Despite the barriers preventing banks from implementing blockchain, being intimidated should not stop any bank from investing.
Blockchain will be the banking industry’s most game-changing technology innovation since the internet. As companies such as Bank of America Merrill Lynch, Citigroup Inc., Credit Suisse AG, J.P. Morgan Chase & Co., and our investor and partner, Goldman Sachs, continue to invest and test blockchains, you can expect the distributed ledger technology to have a short and long-term impact on the banking industry.
Simply put, this technology allows strangers who have zero confidence in one another to collaborate without having to worry about trusting each other. Blockchain will add greatly valued trust between the two parties.
To learn more about Blockchain, I highly recommend checking out this presentation created by Goldman Sachs: http://www.goldmansachs.com/our-thinking/pages/blockchain/
To see a demo of how the Blockchain technology operates, I highly recommend checking out this link here:
https://blockchaindemo.io/
