It’s interesting to see the twists and turns that take place in the game we know as business. Some of the world’s largest financial analysts and players are talking about getting rid of a popular financial tool. Blockchain went from being a controversial issue that attracted the attention of people like technology evangelists to being the greatest invention in mainstream banking within a matter of months.
So what is Blockchain? Essentially is a record, or digital of any and all bitcoin transaction ever made. This record is distributed or shared among millions of people, and can only be updated if the majority of participants agreed. Information can never be erased once it’s in the system.
Within that time, there has been an onslaught of press about Blockchain. One news outlet announced how Nasdaq explained their first share transaction with Blockchain. The Australian stock exchange mentioned they would test it for trade settlement and five more banks took a partnership with them.
It’s ironic that Blockchain started to grow popular in the eyes of people due to bitcoin. Nonetheless, there seems to have been a shift where a majority of people are talking about it. The great thing about Blockchain is that they can store a record of digital history that cannot be altered or forged. In fact, many of this in the finance sector are currently exploring how they can use it. Some of these uses will be clearing information, transferring, and performing intra-bank settlements.
The thinking behind Blockchain is to make a transparent, shared infrastructure where several transactions can be finalized and settled in a matter of days. However there aren’t a lot of insiders that can attest to its short term success.
There will be several hurdles for Blockchain to overcome. An obvious one would be concern coming from large banks, ones who generate large profits from each transaction. If transactions with Blockchain were much more efficient, why would anyone pay to have a bank help them?
An ex-head of Barclays Technology believes that the banks do not hold a true interest in the technology. Rather, he thinks they are “cynical” in the sense they want to take control instead of work together and create meaningful reforms.
The issue with prioritizing is another problem that make the chances of short-term success far-fetched. Keeping up with global regulations is already a pain to banks because it frequently changes. There’s a tremendous amount of effort already being put into complying with regulators, so it’s tough to justify diverting attention from it to another unrelated complication.
Banks are also badly in debt in regards to infrastructure in their processing systems, which could very well be nearly two decades old. Still, banks continue to use them for some transactions when they work with the government and big businesses. If they decided to disrupt it, even for a minute, the result could be a deadly one.
Even the idea of clustering them in a single order is a risky idea. There may not be many who work within banks that would want to take such a task, even more so when it’s completely outside their normal business model. Overall, the issue is that banks are not set up to work with this type of breakthrough.
If Blockchain were ever to go beyond the incubators, they still would have to be profitable. It would take a lot to convince stakeholders to go for it if there is a chance the project would crumble. Startups can avoid these issues for a while, but even they will need to integrate with current financial infrastructures. When it gets to that, the companies will have a hard time going against the reality of the banking system, which can lead to disappointed investors.
Regardless, Blockchain is huge — investment in Blockchain and bitcoin hit $1 billion. Nonetheless, as with any fresh technology on the market, there are many trying to find out the best applications and financial exchanges are tough to convince at the moment. Blockchain technology is beyond money though; it can create and store just about any data and will be an excellent tool against fraud which cost banks billions. It could also change the way banks show their compliance with regulations, laws, and consumer contracts. Blockchains make it so an outsider can verify a certain aspect of data, like location, without giving away sensitive information about the data. Even though it is still in the rough stages, Blockchain application could be the most promising form of security. Anyone that places their digital data there can be protected against any unauthorized complications. Once you can stop a hacker from being able to fake or manipulate data.
Banks today still struggle with hackers manipulating their data such as when JPMorgan’s system got breached in 2014. The hackers were able to take the personal information of nearly 100 million people. One day implementing Blockchain may be possible in the future as something that can integrate with major banks. Still, the hard part is pushing our global financial system to rethink the way we do things. The financial industry can be extremely resistant to change, but there may be a day that change will be an inevitable choice to make.