The top 100 global financial institutions will invest more than $1 billion on Bitcoin and blockchain-related projects over the next two years, suggests research by Magister Advisors.
The investment boutique reports that leading private blockchain companies are signing seven-figure contracts with financial institutions, with a number of projects “near production”.
|The corporate customer stands to benefit from the current period of rapid and open innovation in blockchain services|
Technology firm R3 reckons it has stolen a march in the race to develop a ubiquitous blockchain technology framework by creating a consortium that has now signed up 25 international banks. The firm’s managing director Charley Cooper suggests that corporates will gravitate towards a single solution.
“Right now, a lot of money is being thrown at distributed-ledger technologies in a fractured way,” he says.
“The key to developing these technologies in a way that is meaningful and efficient – and to gaining widespread acceptance – is to work in collaboration with the industry to develop a single solution, combining resources rather than spending time focusing on individual projects that would then effectively require to be duplicated across institutions.”
According to Cooper, the promise of blockchain solutions will only fully be realised by building on a network effect across the financial services industry.
“Over the short term, you will see various companies compete in this space and you are already seeing a flurry of activity as many firms with disparate approaches struggle for adoption,” he says. “That may result in a temporary fragmentation of the market, but it is unsustainable.
“Over the long term, we believe the market will migrate to a comprehensive solution that can unify the major financial services stakeholders.”
Philippe Gelis, CEO of Kantox, agrees that many smaller platforms will fall by the wayside and that those with the best chance of success are those that work directly with the major banks, while Ripple Labs CEO Chris Larsen notes that extensive due diligence means technologies or solutions that are backed and/or used by banks will naturally engender trust amongst their corporate customers.
“We believe there will be multiple solutions in the market,” he says. “The advantage to having so many solutions is that each ledger can serve a distinct use case extremely well.”
The most important factor is that these solutions are able to communicate with each other in a secure way so that assets can be passed across chains if necessary, adds Peter Randall, COO of permissioned-ledger system developer SETL.
“For example, global banks could deploy internal blockchains to support cross-bank initiatives and these could be easily linked to other chains that provide bespoke ledger services to corporates,” he says.
“We aim to use blockchain technology for post-trade payments and settlements. This area is currently plagued by the presence of a large number of disparate systems, each of which requires market participants to maintain a plethora of interfaces and reconciliation procedures.”
Companies might, in principle, find an element of reassurance from using a service that has the backing of major international banks, but Dan Anderson, founder of LEOcoin, a Bitcoin rival, suggests there is often a misguided assumption that the increased level of control and regulation that can come with these major institutions using the technology is a good thing.
“In reality, controlled markets are not always better,” he says. “Overzealous intervention can actually dissolve the principal benefits of the blockchain.
|Getting to grips|
“Fundamentally, this technology is and should be a disruptive element, allowing ambitious people and companies to do things differently. If banks simply use the blockchain to do the same thing with different technology then they will have missed a huge opportunity.”
When asked whether the presence of too many blockchain propositions could fragment the market, Anderson observes that the technology is naturally disruptive, adding: “Having a number of competing platforms operating in the market would undoubtedly be a good thing, as it will give consumers choice.”
Melanie Swan, blockchain theorist at the New School for Social Research in New York, recommends companies test out a number of platforms.
“The corporate customer stands to benefit from the current period of rapid and open innovation in blockchain services,” she concludes.
“One strategy would be to have a handful of pilot projects deployed on one or more different platforms with the objective of learning how the technology works and gradually ease into longer-term decisions where platform stability matters.”