Bitcoin’s success and its underlying technology, the blockchain, have recently gained the interest of many well established parties. Bitcoin is a cryptocurrency invented by Satoski Nakamoto in 2008. In its early days it was seen as an exotic currency used only by computer specialists.
Currently you can order your pizza and pay with Bitcoin, as it is widely accepted on many websites and shops through payment services providers like Adyen and Ingenico ePayments.
The architecture behind the Bitcoin is the distributed ledger. All participating databases within a blockchain contain the list of records, which is secured from tampering and revision. Blockchain’s disruptive architecture is built in such a way that nobody owns the data. Instead, the data is distributed and stored on the participating ledgers within the network. Participation in the blockchain network can be either open for everybody/ open source networks, or on invitation for the private blockchain.
Hype or trend?
Almost daily one can read in the news about blockchain initiatives. Therefore, is blockchain a hype, which will pass away, or a trend towards a new ordering of technology and society? The best way to answer this question is to have a look at parties who are investing their reputation and their millions into blockchain initiatives:
- The Central bank of Canada has plans of developing a digital version of the Canadian dollar based on blockchain technology (June 16, 2016)
- Sweden tests blockchain technology for land registry that could potentially replace complicated systems such as clearing and settlement with one simple database (June 16, 2016)
- Visa is developing a new near real-time transaction system designed for the exchange of high-value international payments between participating banks on behalf of their corporate clients (October 21, 2016)
- R3, eight banks, including HSBC and State Street, have successfully tested a blockchain platform powered by Intel Corp technology for bond transactions (Sept 26, 2016).
- Dubai's Emirates NBD joins India's ICICI on blockchain project. According to Emirates NBD the project showed banks can significantly cut transaction costs and time, while demonstrating a near real-time transfer of invoices and purchase orders for trade finance purchases (Oct 12, 2016)
- Mercuria (one of the world's largest commodity traders) sees oil sector going digital with blockchain. The blockchain technology could potentially replace complicated clearing and settlement systems with one simple ledger (October 13, 2016).
Taking into account the hundreds of millions dollars invested in blockchain and the reputation of the parties backing the investments, the only conclusion is that blockchain is a trend.
Winners and losers
The blockchain investments reward in 2 ways: 1) increased efficiency and 2) cost saving. The efficiency increase is an economic gain where everybody will be a winner. The big question is, if millions are saved in costs, which companies will be losing those revenues? The losers will be the parties whose business models are based on trusted data storage (like the land and other registries, custody, etc.) and the clearing and settlement industry. The distributed ledger will make the trusted third parties obsolete. Many parties involved can keep their own records and update these based on the agreed protocols. Companies in these sectors should start preparing for losing revenues and disruptive developments.
When will the blockchain take over?
If you compare the current blockchain investments and initiatives with the mid-nineties internet investments the blockchain bubble will probably burst in a few years (2020?) and in 10 to 15 years (2025-2030) the first group of well respected companies will get into serious trouble because of the shift to blockchain solutions.
Based on Darwin’s theory of Evolution, not the strongest or smartest will survive, but those most adaptive to change.
About Robi Dattatreya
Robi Dattatreya is the founder of Total Solutions and has an extensive career in the Financial Sector, on the corporate side, banking side and supplier side. By combining his understanding of client needs, technology and innovation, he has developed a number of successful initiatives and solutions.
About Total Solutions
Total Solutions is specialised in providing solutions to financial market and treasury professionals. For banks, corporate treasury and other financial institutions, Total Solutions selects experienced professionals for temporary and permanent assignment, develops specialised trainings and delivers outplacement and payrolling services. Total Solutions is the preferred supplier for all leading financial institutions and the largest supplier for the financial markets and treasury segment in the Netherlands.
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