The World Economic Forum Predicts a Blockchain Disruption
Blockchain is still a vague concept to many executives in the financial industry, but its disruptive potential already has most banks hedging their bets with at least some sort of investment on proof of concepts. It’s too early to say whether Blockchain technologies can completely alter the global financial markets as some people think, but we can expect them to have a significant impact in various areas including finance, government ledgers (such as land registries) and the Internet of things.
Last week, the World Economic Forum (WEF) released a report predicting that Blockchain will come to occupy a central place in the global financial system.
The WEF’s study is based on a year of research and discussion among financial institutions worldwide, with input from the Bank of England, the European Central Bank, and the US Federal Reserve, among others. A majority of banks are expected to start these projects in 2017 with more than 90 central banks currently discussing the use of Blockchain. Some have already started, including the Bank of England, Nasdaq and others.
Giancarlo Bruno, the head of financial services industries at the WEF, said in a statement that “rather than to stay at the margins of the finance industry, Blockchain will become the beating heart of it.”
Blockchain is a decentralised database architecture originally developed for the digital currency Bitcoin, in which linked databases talk to each other and are updated every few minutes instead of relying on a central database. Every time a change is made in the shared database, the changes are posted to all linked databases, and the correct combination of entries provides the validation key. This cuts out the need for middlemen, reducing costs and building trust into the system.
The WEF expects most developments will happen behind the curtain, meaning consumers won’t necessarily be aware of any fundamental changes to their financial infrastructure, but Blockchain should lead to cheaper and faster financial services. The report says that the technology could help improve mainstream transactions, like global payments and stock trades, and lesser-known areas like trade finance and contingent convertible bonds.
Though WEF is bullish on the potential of Blockchain, it’s not a panacea. In reality it’s one of many technologies that will form the foundation of next-generation financial services and reshape the industry. Implementations will require deep collaboration between incumbents, innovators and regulators. The lesser need for middlemen is likely to have a negative effect on some areas of the financial services industry, such as stockbrokers.
CCS Insight has written about the potential and current uses of Blockchain during the past few years (see Payment Protocol to Protect Patient Privacy). In 2015 we predicted that Blockchain would begin to develop into a disruptive force during the coming years (see CCS Insight Predictions for 2016 and Beyond). The WEF is backing us up on this.
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