Laura Bruin attended the Blockchain Conference London 2016, which featured a number of panel discussions covering topics such as private versus public blockchain, interbank ledgers and smart contracts, regulation and compliance, blockchain for identity and security, investors’ views of blockchain and the future of blockchain.
Key themes from the conference include:
- Blockchain is a distributed public ledger. Ledgers are the system of record for a business. Ledgers record asset transfers between participants. Businesses have multiple ledgers for the multiple business networks in which they operate. Blockchain is a shared ledger across a broad business network. Everyone in the network has their own view of the ledger. Blockchain therefore enables businesses to modernise the ledger process.
- It is difficult to monitor assert ownership and transfers in a shared business network. Blockchain provides a solution. Blockchain is a permissioned, replicated, shared ledger. Blockchain can beconfigured so that it can be used only by known participants. It is possible to configure the permission rights related to blockchain so that the participants in a network know who they are dealing with.
- Blockchain allows participants to view transactions in real time. This provides opportunities for businesses (and regulators) to collect valuable data and cut processing times.
- The issue of public versus private network is a spectrum, not an either/or proposition. The question of whether to use a private or public blockchain depends on what the institution using the blockchain is trying to offer to participants in the network.
- A federated blockchain may be a viable option for financial institutions that want to adopt blockchain technology but do not want to be part of a public network. R3 is a private blockchain consortium which launched in September 2015 and now has 42 bank members. R3 aims to design and apply distributed ledger technologies to global financial markets. The latest banks to join the consortium during R3’s banking membership round in December 2015 are BMO Financial Group, Danske Bank, Intesa Sanpaolo, Natixis, Nomura, Northern Trust, OP Financial Group, Banco Santander, Scotiabank, Sumitomo Mitsui Banking Corporation, U.S. Bancorp and Westpac Banking Corporation.
- Blockchain can be used to re-engineer business methods. Blockchain (as a distributed ledger) is shared across a broad business network. At present, businesses keep lists of everything they own and then change these lists in a specific way when ownership of assets changes. Blockchain is a standardised list for all assts. Smart contracts can be used as transactions for making changes to those lists of assets.
- Blockchain will need to interoperate with existing infrastructure. Institutions already have huge investment in their infrastructure. Blockchain as a distributed shared ledger is an extremely useful tool but it will not replace the infrastructure that is already in place.
- Live use cases of blockchain will depend on business requirements and ease of implementation and deployment, particularly in cross-bank integration. Smart contracts are likely to be easier to roll out than distributed ledgers, but distributed ledgers are where the change in existing business methods will happen. NASDAQ has already used blockchain technology. Isolated use cases exist, but these need to be connected together.
- There are a number of barriers to the adoption of blockchain:
- Regulation. As blockchain is a new technology, there have been a number of discussions regarding how to regulate it. These discussions assume that, because blockchain is a disruptive technology, and can be used in transactions between financial institutions, it needs regulation. Advocates of blockchain argue that this is not correct. Blockchain is said to remove the need for regulation through the use of technology (by providing a secure, immutable distributed ledger to which all parties in a network, including regulators, have access). Blockchain itself is not hindered by regulation. It is the uses that blockchain is put to that cause a regulatory issue. Blockchain is a facilitator that should simplify regulation.
- Data protection. A blockchain will often span a number of jurisdictions. This causes data protection issues, as all of the data in the chain can be seen by each of the participants in the network. This will involve transferring data across geographical boundaries, which risks breaching local data protection laws.
- Privacy. The participants in a network may not want all the other participants to see all the data in the chain. A bank will not want to make its trading exposure public. Participants in private networks need to make sure they are permissioned correctly, with each participant only being able to see certain parts of the chain.
- Mindset. Incumbents will need to be persuaded that digital currency is more than just disruptive technology. Education is needed to show that blockchain provides tools to carry out business process in a different way.
- Businesses are driving the adoption of blockchain in order to benefit from lower costs and increased efficiencies. It is likely however that businesses will use blockchain internally initially (e.g. to simplify their internal business processes), as the barriers to adoption of blockchain are yet to be resolved.