The Past, Present and Future of Blockchain.

If you’re asking yourself whether the hype around blockchain is worth looking into it, the answer is yes.

You should definitively look to understand what the is fuss all about because there is a high probability that the future of blockchain will impact your work, your business and potentially your day-to-day life much sooner than you realize!

Let me first demystify this concept – because blockchain technology has become a concept beyond the technology itself, and make one point very clear: blockchain is NOT Bitcoin. The blockchain technology (commonly just called blockchain), also known as Distributed Ledger Technology (DLT) has been invented to enable Bitcoin transactions, in a fully decentralized and transparent approach. Imagine a giant, decentralized, shared, replicated, synchronized and distributed database that records immutable electronic transactions in a secure way. You then have the global picture of a blockchain.

Transactions are chronologically entered, shared and replicated between the participants and secured by cryptographic sealing, making them very difficult to falsify. The ledger is synchronized periodically and blocks of transactions are verified and validated by peer monitoring. Every participant has a replica of the ledger and a private key that represents a legal identity. The blockchain, therefore, allows traceability, authenticity, accountability, privacy, security and data handling.

The decentralized part illustrates the peer-to-peer transactions, and that, to me, is probably the most important idea to retain, because it gives you a glimpse of the potentiality of the blockchain as a transformative technology, beyond the Bitcoin application. Even though no consensus has been reached on whether and how it should be applied to other markets, the idea of a decentralized ecosystem endorsed by the blockchain technology has started to flourish. We are about to enter a new era, repeating the same patterns as e-commerce: the internet has allowed to intermediate consumers and consumers have become producers.

Similarly, the blockchain has started to create a paradigm shift in many industries, especially within financial services.  The loss of trust in financial markets since 2007, coupled with a fragmented, inefficient architecture are pushing the sector towards a decentralized system. So, how could the blockchain answer inefficiencies inherent to the system, whilst complying with new requirements (greater transparency, better management of risks and higher capital) demanded by the regulators?  To start, you would have to define the technology you need – whereas the Bitcoin application works on a public blockchain, financial institutions are looking at private blockchains where only authorized parties could access particular records for confidentiality purposes.

Then, define the business use cases. The technology will be applied to many departments; the question is where to start? For instance, blockchain will be useful for the ‘Know Your Customer’ (KYC) process. We can imagine a secured, distributed ledger shared between a closed group of banks and a regulator; this could help reduce duplication of verifications at the client on-boarding stage.

Another use case of blockchain implementation, that may be obvious in terms of benefits, is the post-trade application: by removing the various intermediaries, blockchain technology will significantly reduce costs and time. A real-time clearing and settlement process would remove the counterparty risk, mitigate the settlement risk and decrease the scope of data errors.

Exciting, isn’t it? Of course, those kinds of changes don’t come easy. And, with the technology being in its infancy, there is a lot of interrogation around both the technicalities and implications.

How does one ensure anonymity, confidentiality, and privacy – essential for financial institutions – whilst enabling greater transparency? Should you start by implementing small blockchains for different activities and scale up, or participate in a larger consortium to avoid interoperability issues? If the blockchain removes the middlemen then what will the roles be for banks, custodians, clearing and settlement houses? What would be the impact on the whole architecture of the financial markets? Last but not least, to what extent would the regulations around blockchain impact its implementation?

Nevertheless, one fact has been indisputably acknowledged: The blockchain revolution is here disrupting many industries, but it will not happen overnight.

A “wait-and-see” strategy is no longer an appropriate response and every organization must prepare for change.

This change will require a pragmatic, well-adjusted approach and an active early engagement of all the stakeholders.

amardeep kaushal

Blogger, Marketer & Data Analyst.

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