As we move from hype to reality, where are we seeing the greatest impact?
In 2017 Gartner forecast that the global derived business value from blockchain will reach $3.1 trillion by 2030. This value would be attained by: business process efficiencies, market redistribution through creative disruption, and the creation of new business models.
This is especially true in financial services. While the industry was initially skeptical, blockchain is now a growing part of digital transformation in a new era of banking.
Last year, the Financial Times identified 5 ways in which banks are using blockchain: Clearing & Settlement, Payments, Trade Finance, Identity, and Syndicated Loans.
Improving the efficiency of clearing and settlement and “blowing up” the back office is in everybody’s interest. The potential savings are huge. A leading consultant estimated that the biggest investment banks could save $10bn using blockchain technology. In the battle for survival between new and more established players, the ability to realize such savings while completing transactions in real-time with immediate settlement could create vital competitive advantage. However, there are still significant regulatory challenges and fraud concerns that will need to be overcome.
Another related area of growth is the use of Smart Contracts. Smart Contracts distributed and replicated across a blockchain have the potential to revolutionize the way business is done. For example, property ownership could be transferred automatically upon receipt of cleared funds; credits under service level agreements could be automatically paid, and securities could be traded without the need for central securities depositories.
While the future of Smart Contracts is still largely uncertain and as so often with blockchain there are challenges of trust, regulation, privacy, and irreversibility, it seems highly likely that smart contracts will automate the execution of contracts, in particular, those with no need for subjective human intervention. As an example of this, AlphaPoint is creating new markets in financial services by digitizing traditionally illiquid assets, like collectibles, private equity shares, loans, and commodities. Their Trusted Virtual Machine leverages the trusted execution environment (TEE) that Intel® Software Guard Extensions (Intel® SGX) enables to secure smart contract execution and validation.
This leads on to other areas of probable transformation, Trade Finance, and Global Custody. These are classic areas of a middle-party between buyers and sellers. In this context blockchain technology has the potential for major industry disruption. There are some confident that blockchain will create opportunity, but this will only be true for those that truly transform their business model rather than papering over the cracks. Blockchain has the real promise of cutting through current expensive complexity.
Another area of impact is in establishing provenance and authenticity, a reliable record of where any asset originated. R3’s Corda* distributed ledger platform uses Intel® SGX technology to provide additional layers of data privacy for financial institutions in “need to know” scenarios. When institutions want to prove the provenance of an asset without revealing sensitive data, Intel® SGX processes the encrypted data without it being exposed in decrypted form to the machine owner.
There are many ways in which blockchain can make a difference with regard to identity in financial services. For example, improving customer engagement, reducing verification costs and helping to combat money laundering.
While the Financial Times identified Syndicated Loans as an area ripe for innovation and bank transformation, perhaps the highest profile aspect when it comes to fundraising and investment has been the ICO “Initial Coin Offering”. In 2017, there was over $6 billion raised. In 2018 to date, over $9 billion. However, this apparent growth may not be telling the full story. If you take out the two mega deals Telegram and EOS, then you can argue there is a slow-down compared to the end of last year. Regardless, even with further constriction through increased regulation in the West, it seems that there is definite and ongoing demand from both issuers and investors.
Which brings us back the currency beginnings of blockchain. The irony is that, without legal tender status, this is perhaps the least likely usage to find large scale adoption outside the low-trust corners of the global economy. Sovereign nations remain largely suspicious because of tax and regulatory challenges.
Across the board with blockchain, common challenges remain in terms of privacy, security, scalability, and trust. Intel and its partners are working closely with customers, consortia, standard bodies, and academia to help drive enterprise adoption and shorten time to value with blockchain deployments. Intel’s cutting-edge technologies such as Intel® Software Guard Extensions (Intel® SGX), Intel® Xeon® Scalable processors and Hyperledger Sawtooth*, an open-source contribution, are helping to empower businesses.
There are clearly many ways that financial services firms can and will reinvent themselves and their markets with blockchain. What also seems clear though is that it’s not all about currency.
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