For most people, Bitcoin is more of a familiar term than blockchain, ever since the inception of Bitcoin in 2009 as the first modern form of cryptocurrency or digital currency. The irony is that Bitcoin and almost all the digital currencies to follow, rely principally on blockchain architecture.
However, with the passage of time the number of people showing interest in blockchain itself is increasing significantly. For past few years, FinTech industry has been quite abuzz with blockchain, with scores of startups, banks, insurance firms and other key players of FinTech industry setting up consortiums to dig deeper into the phenomenon of blockchain to get the most out of it for their own interests.
Where we see the enthusiasts of blockchain praising its endless possibilities, presenting it as the ‘next big thing’, we also see traditional institutions still struggling in using it effectively to overcome their problems and save their costs. In fact, there is this debate going on, does blockchain have the potential to go mainstream or is it just another bubble about to burst after some initial hype. Before we go any further, let’s have a look at:
What blockchain is in essence?
At the very basic level, blockchain technology involves a database distributed in a list of records, commonly referred as ‘blocks’, each of which is distinguished with the help of a timestamp that serves to link it to the block preceding it. This interconnectivity of the blocks imitates a chain, thus being collectively referred as the ‘blockchain’.
One of the prime features of these blocks is that the data recorded into any of them cannot be changed once it’s locked in its position, which also makes this technology essentially immune to hacks and cracks. Now when they say that the record of every transaction ever carried out over Bitcoin network remains accessible to all the members of the network while being immutable, it’s this intrinsic feature of blockchain working behind the curtains.
However, the financial landscape changed dramatically when financial institutions realized that blockchain technology can be copied to build their own versions capable of serving their individual interests.
Cryptocurrency – one of the biggest beneficiaries of blockchain
Without any doubt, cryptocurrency has been the biggest beneficiaries of blockchain till date, but as an open-source technology, anyone in the world can program and develop over its original premise. This has been one of the major reasons behind inspiring countless people and groups in trying to develop and create their own versions of digital currencies based on blockchain architecture.
In fact, more than 700 cryptocurrencies were known to exist by June 2016, top 100 of them claiming a total market cap of over $24 billion, with Bitcoin alone boasting of about $16 billion. This has always kept alive the possibility of new cryptocurrencies making their way to top as well. Currently, some of the most famed cryptocurrencies other than Bitcoin include Ethereum, LiteCoin, Dogecoin, Goldime, Abundeum and Hedgenickel.
The potential blockchain holds beyond cryptocurrency
Where investing in cryptocurrency has come up as one of the biggest contributions of blockchain to the global financial landscape, many believe its true potential goes far beyond cryptocurrency. According to Coin Desk, a specialized news website, more than $400 million were put up by investment funds into startups dedicated to different variations of digital currencies only in the first half of 2016.
According to Accenture, currently, about three days are consumed in settlement of equities, corporate bonds and other private debt instruments. Blockchain is believed to be capable of accelerating the proceedings to a matter of hours or even minutes. As far as syndicated loans are concerned, their settlement time spanning over multiple days can be slashed down to a single day using blockchain technology.
Experts also believe that blockchain has the capability to disrupt several key areas within financial services. With its strong inherent authentication capabilities, it can also serve potentially as a dynamic verification mechanism between multiple parties. It also holds the potential to reduce payment costs for businesses by cutting out the middleman, also increasing the transaction speeds ultimately. This could also improve auditing practices significantly, which could be done in real time, easing out regulators to dig through corporate records much more efficiently.
Nowadays, countless new blockchain startups are coming up, each of them with varied services within the array of possibilities created by blockchain technology. Some are zooming in on offering a single service, for example, easier payment methods, whereas others promise of infrastructural enhancements needed to handle the upcoming technologies, which traditional banking services lack currently.
Truth is that the applications of blockchain for financial sector go far beyond private network of trust between different banks. Some companies are counting on it for efficient transfer of bonds and shares, while others are trying to exploit its potential as ‘truth machine’, giving items their proof of identities using it. ‘Smart contracts’ is one of the best examples in this respect, which function by programming cryptocurrency to become available if a particular set of mutually agreed upon conditions (among the involved parties) is met.
Next step in evolution of business practices or a looming threat to the existing financial structures?
Theoretically, blockchain is highly capable of helping banks cut their transaction costs, enabling them to process bonds and settlements quickly and efficiently by cutting out middlemen. But isn’t this also like putting the banks in the same league, the middlemen offering to facilitate contemporary businesses in carrying out their financial transactions?
Now this is becoming a great paradox in this whole scenario; are banks and other conglomerates offering financial services to other businesses really happy about being cut out as middlemen? This is one tricky question that still needs to be addressed broadly.
However, not all banks seem to be that apprehensive about blockchain, many of them are also seeing this as a great opportunity to improve and enhance their existing methods of transactions in domains like foreign exchanges, trades, settlements and securities, to still stay relevant and beneficial for other businesses by excelling in their own services as middlemen. JP Morgan, Bank of America, Citi Bank, BNB Paribas, UBS and Barclays are just a few banking giants that are either already into exploring the potential of blockchain for improving banking services or about to do so in very near future. According to estimates of Santander Bank, blockchain is capable of helping banking sector save about $20 billion a year.
Will Blockchain ever truly make it mainstream?
Though much of all this is still hypothetical, with blockchain still quite nascent as a viable infrastructural enhancement for global financial landscape, majority of big corporations finally seem serious about assessing its potential and evaluate what they will gain by adopting it.
As to the question itself, will blockchain ever truly make it mainstream; a huge majority of experts and enthusiasts believe so, especially after witnessing the frenzy around it since past few years. They believe it’s still far from coming of age in dominating the financial world’s infrastructure, but it’s already on its way.
Renowned business man and blockchain enthusiasts like Dan and Alex Tapscott are of the opinion that the real power of blockchain lies in its ability to act as the basic medium for value, like the internet has been for information. This is what solidifies its potential to transform the current financial infrastructure by cutting costs of the services and simplifying the procedures, while at the same time increasing transparency and bettering the regulations involved in the processes.