Posted on: October 7, 2015 Posted by: Oleh Zaiats Comments: 0

I am not the first (and even not the tenth) person giving blockchain an unreserved vote of confidence, but let me explain my reasoning.

Global banks join the party

More than 20 world’s leading banks started collaborating with distributed ledger startup R3 CEV in 2015. The aim of their project is to design and apply distributed ledger technologies for global financial markets.

According to R3’s press release, a number of global banks are joining the partnership, including Bank of America, Bank of New York Mellon, Mitsubishi UFJ Financial Group, Citi, Commerzbank, Deutsche Bank, HSBC, Morgan Stanley, National Australia Bank, Royal Bank of Canada, SEB, Societe Generale, and Toronto-Dominion Bank.

“The addition of this new group of banks demonstrates widespread support for innovative distributed ledger solutions across the global financial services community, and we’re delighted to have them on board,” says David Rutter, CEO of R3. “We have placed an emphasis on working with the market from day one, and our partners recognise that a collaborative model is the best way to quickly, efficiently and cost-effectively deliver these new technologies to global financial markets.”

It is the first public collaboration of global financial institutions in respect of blockchain technology. It proves that they take this technology seriously.

However, not only banks have joined the party. Nasdaq, the US stock exchange, was one of the earliest blockchain admirers. It has been working for a year on possible usage of distributed ledger for private stock sales.

Eric van der Kleij, who had been leading London-based fintech hub Level39 for three years, returned to Entiq this autumn to explore applications of distributed ledger technology for financial institutions.

Blockchain and bitcoin are independent players

Blockchain and bitcoin are not a hand and a glove any more. Moreover, there is a point of view that the technology underlying bitcoin is a far more prospective thing than bitcoin itself.

At the Bloomberg Markets Most Influential Summit in New York, Blythe Masters, chief executive officer of New York technology startup Digital Asset Holdings, said.

“This is a technology that enables institutions to do what they do already today within databases but a lot quicker, a lot cheaper, with far lower error rates, with less result in risk, and as a results with lower capital requirements, and less vulnerability to cyber attack.”

I believe none of us can deny these words. Blockchain technology, hypothetically, could save billions of dollars for financial institutions. The execution and settlement of trades could be dramatically sped up. It is especially important during processing transactions related to syndicated loans or repurchase agreements.

A lot of finance professionals agree that blockchain could have its own way and thrive successfully without bitcoin. Recently,  Greenwich Associates has released its Distributed Ledgers in Capital Markets: Answering the Big Questions survey, in which 73% of the respondents says they believe that blockchain can survive without bitcoin.

During his speech at Australia’s Carnegie Mellon University, Greg Medcraft, the chairman of the Australian Securities and Investments Commission, expressed an idea that blockchain has potential to change the existing financial system fundamentally. Medcraft said that distributed ledger technology could result in greater efficiency, speed, and disintermediation, reduced transaction costs, and improved market access.

In its new report, the World Economic Forum has identified blockchain technology as one of the top trends. The report includes the results of a survey of more than 800 information and communications executives and experts.

The report states:

“Economic and monetary management will be overhauled by new systems anchored in digital currencies and the blockchain, making traditional pricing mechanisms and exchange rate systems less relevant.”

The main blockchain benefits are also indicated in the report, in particular:

  • Explosion in tradable assets, as all kinds of value exchange can be hosted on the blockchain
  • Better property records in emerging markets and the ability to make everything a tradable asset
  • Contacts and legal services increasingly tied to code linked to the blockchain, to be used as unbreakable escrow or programmatically designed smart contracts
  • Disintermediation of financial institutions, as new services and value exchanges are created directly on the blockchain
  • Increased financial inclusion in emerging markets, as financial services on the blockchain gain critical mass
  • Increased transparency, as the blockchain is essentially a global ledger storing all transactions.

It is natural that the trends mentioned above influence venture capitalists’ investments strategies. Investors turn their attention on companies designing the solutions related to usage of blockchain in different areas of the economy.

For instance, US telecommunications giant Verizon ($87.6bn in wireless revenues in 2014) invested in Filament, a US-based startup seeking to use blockchain technology to enable Internet of Things. The investment was made through Verizon’s venture capital arm Verizon Ventures.

Filament raised $5m total in Series A funding, including contributions from Bullpen Capital, Verizon Ventures and Samsung Ventures.

Another example is blockchain technology startup Chain, which raised $30 million in venture funding. Capital One, Fiserv, and Visa were among the funders.

Blockchain: not for finance only

One of the most important blockchain features is that it can be used not only for business transaction. Blockchain can be used for almost anything at all.

The UK government is exploring the use of blockchain for improving the transparency and accuracy of its record keeping. It wonders how the government registers could be improved through the use of a blockchain.

Then you have possibilities like trustless audit chains, property title chains, record keeping for sensitive personal, medical and corporate materials, public accountability mechanisms, and so much more.

All things considered, I am completely convinced that 2016 and beyond will be years of momentous growth for blockchain technology.

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