The year 2008 was a turning point in the world of financial technology, when an anonymous paper was published titled “Bitcoin – a peer-to-peer electronic cash system”. The paper described a method for peer-to-peer transfers of electronic cash without the need to go via an intermediary or through a financial institution such as a bank. “Bitcoin” was the name coined, but the term “cryptocurrency” is used to describe the networks and mediums of exchange that use cryptography to accomplish and secure these types of digital transactions. Since this journey started, just over a decade has passed by, and the financial industry has at large looked at Blockchain (the underlying technology of cryptocurrencies) as the future for many business cases.
The current state of play around Blockchain has the financial services industry looking at the challenges and opportunities of implementing this technology across banking, capital markets and payments domain. Though the financial services industry is not the only industry influenced by Blockchain, it is presently leading the way in experimenting with implementation of Blockchain technology.
As a distributed ledgering technology, Blockchain may not completely replace the current payments and messaging systems deployed by banks. But these systems will start connecting to Blockchain-based networks, augmenting existing business networks, and providing better efficiency, discoverability and trust. These benefits are clearly relevant to an industry focused on de-risking and improving its compliance capabilities, on streamlining and automating, and on reinforcing trust in some time-honored business processes.
Indeed, industry pundits who have contributed to many papers on Blockchain confirm its potential to bring great value in a few important financial services activities, from trade finance and payments, to securities settlement, and to regulatory compliance.
When it comes to digital cash – Blockchain is the way to go. Blockchain technology allows a digital currency to maintain a trusted transaction network without relying on a central authority. Ever since its inception, we have seen various views emerge on its value and effectiveness – both positive and negative. The applications of Blockchain have advanced greatly today, and we are seeing an increase in adoption, especially in cross-enterprise use-cases.
One of the better use cases for Blockchain is for trade transactions – both domestic and cross-country trade. But, to implement this as a usable, value-adding proposition, it is important to maximize participation across different types of entities involved in the trade lifecycle and to put in place a blockchain-based platform and process across these participants covering import, exports, and domestic bills. Hence, it is time for enterprises and the government to rethink transaction processing of all kinds in the digital era using Blockchain technology.
We are seeing an upsurge in Blockchain adoption, and investments in Blockchain technology and its enterprise application for identified business use cases where the business impact is visible and clear. In fact, adoption of Blockchain technology is being seen as a game-changer as far as Banking and financial services industry is concerned. There is a clear movement in the direction of digital cash and that’s very likely the future of certain types of payments. As per World Economic Forum forecasts – by the year 2027, 10% of global GDP will be stored in blockchain ledgers.
Finally, for wide acceptance of digital cash using Blockchain technology, it is important to develop a globally applicable regulatory framework for cryptocurrencies. Once such a digital currency framework and policy is in place, we can expect a faster adoption rate. The implementation of digital cash will bring convergence of global financial institutions and bring more transparency and traceability for transactions.
Last but not the least, it is important to choose the right technology partners and experts to leverage Blockchain technology across various areas, and to realize the full potential of what Blockchain can provide.
The author is Head – Banking Solutions APMEA at FIS.