Skip to content
Blockchain

Blockchain in finance: Pioneers, prototypes and pitfalls

Published on

The financial industry hasn't fully warmed up to blockchain, but widespread adoption is coming.

In the financial arena, blockchain is still immature and remains an area littered with prototypes and pilots.

That was the general consensus among panelists at “Blockchain in Finance: Pioneering applications,” a recent discussion examining the challenges pioneers of blockchain are facing in that particular field.

That being said, the plethora of challenges that must be overcome is undeniably outweighed by the opportunities that exist.   Market players must work together to exploit these opportunities because, as in any industry, collaboration is the key to success: each fledgling venture or application can only achieve a limited amount on its own.

Some of the unique challenges that banks are experiencing when developing blockchain applications within their legacy systems include:

A daunting regulatory environment

Banks and financial institutions operate in a heavily regulated environment, which impacts their ability to implement new technology. However, the regulatory backdrop is changing.  In the past, regulators only had two tools: Asking for more data, or asking for data in a different form.  Now, distributed ledger technology offers a new approach, because it brings regulated parties together and requires them to reach consensus.  Regulators around the world are realizing this is a better way to regulate and will eventually reduce costs, which can be passed on to customers.

Deep-seated social challenges

Social challenges stem from the fact that the pervasive industry mindset has yet to catch up to technological advances.  For example, the SWIFT international payment system was introduced in the 1970s and has become “part of the fabric’ of the industry.”  Many industry players still think of this as the only option when making a payment, but technology has progressed and there are alternative options now, such as Ripple, a blockchain-based payment system.

Reputational concerns

New technology often needs validation, as there can be a tendency for people to fear the impact of innovative technology on their businesses and wider industries. It is therefore important to educate people who may have been misinformed about the enabling technology that is now available.

Skepticism

Many organizations are skeptical about whether new technology will indeed benefit their businesses. In reality, technology will impact every aspect of business and all organizations must decide if they will implement technological changes first or last.  Skeptics do not necessarily have anything to fear. For example, telecoms companies were the biggest beneficiaries of VOIP technology, despite early fears that it would destroy the industry.

Governance issues

The governance of shared economies with multiple participants is a new area and one that is not addressed in prototypes.  Technological innovation therefore opens an important discussion about the governance rules that are needed to make decisions in this new environment.

Decentralization

Although some companies are trying to build governance into their overall platforms, there is still the risk of creating a centralized control architecture where a few users hold the majority of voting rights.  The underlying challenge remains that the industry must not replace one centralized business model with yet another one.

Where to next?

Much like the internet, blockchain will undergo a lengthy period where take-up is gradual.  Given the challenges outlined, players first need to identify opportunities, but also pinpoint potential threats that could impact their business models.

The technological innovation space is primarily about iterative learning, and being able to collaborate to progress and change.  Those that embrace this philosophy are likely to find themselves ahead of the innovation curve.

Much like the internet, blockchain will undergo a lengthy period where take-up is gradual.  Given the challenges outlined, players first need to identify opportunities, but also pinpoint potential threats that could impact their business models.

The technological innovation space is primarily about iterative learning, and being able to collaborate to progress and change.  Those that embrace this philosophy are likely to find themselves ahead of the innovation curve.

  • Facebook
  • Twitter
  • Linkedin
  • Google+
  • Email

More answers