2016: A pivotal year for Blockchain
Visitors to the SWIFT Business Forum London 2016 would have been forgiven for experiencing a few Sibos 2015 déjà vu moments – standing room-only Blockchain sessions, “DLT” (distributed ledger technology) speaker references left, right and centre, and a flurry of #Blockchain sound bites punctuating the Twitter dialogue.
But, with one session aptly titled, “Blockchain: beyond the hype”, there was a prevailing sense of Blockchain’s increasing maturity (and acceptance) in the finance world in the six months since the world’s banking community gathered in Singapore. The conversation has evolved from “what is this technology and how is it relevant?” to “how, and how fast, can we implement it?”
Speaking in the keynote panel at SWIFT’s Business Forum London, Blythe Masters, CEO of Digital Asset Holdings, set the tone for the day with her positive vision of a DLT future: "It's not going to be winner takes all. It will be a vibrant, competitive community." Opening a session later that morning, Stephen Gilderdale, Managing Director, UK, Ireland and Nordics at SWIFT, lauded the technology’s many benefits whilst acknowledging the challenges that it poses, from scalability to standardisation – “The industry is learning fast, but the technology is also maturing fast.”
2015 saw Blockchain hit the cover of The Economist – “The Trust Machine” – but all panellists agreed that 2016 will be a pivotal year for the technology’s implementation. “Sensible minds have started to question, where is the business case?” said Simon Taylor, Vice President of Blockchain Research and Development at Barclays. “If we can get comfortable with the compliance risks then there are customers out there.”
Vitalik Buterin, Innotribe alum, Founder of Ethereum and Co-founder of Bitcoin Magazine, cited the increasing interest and collaboration around private chains and consortium networks as a positive indicator for DLT. Open-source innovation drives collaboration which in turn provides ample opportunity for standardisation. However, Vitalik advised that standardisation will be “more successful if it comes from developers first and goes up from there. Rather than [the industry] saying, let’s make a standard!"
It’s not THE Blockchain. We are not there yet. Right now it is many chains.
All the Blockchain experts at SWIFT’s Business Forum London were in agreement that we are now in an early proof-of-concept phase, with some panellists predicting DLT’s “go live” moment in 2016 or 2017. On this point, Matthew Hampson, CTO of Nomura, highlighted the maturity of some ideas (e.g. smart contracts and R3) but the lag on the process engineering: “[People were saying] exchanges will vanish, money will vanish! I don’t see that happening. I haven’t seen the value proposition develop around that.”
Whether or not DLT speeds our trajectory toward a cashless world, there is industry-wide agreement that its successful implementation in finance still faces many challenges in the here and now. Regulation, cultural change at management level, and the difficulty of staffing experts were all cited as hurdles. “Who will drive the collaboration and standardisation?” one panellist asked of his peers. Fortunately, with all the recent media hype and today’s environment of cost-cutting, more execs are eager to learn, test and collaborate.
In looking toward the future, Blockchain speakers echoed the sentiments of the payments session: namely a hope that new technology would herald increased transparency, scalability, speed and adoption. However, as Simon Taylor pointed out, “Blockchain is a revolution in reconciliation not in payments.” This focus was reflected by a securities audience who voted “securities settlement and reconciliation” in response to the question, “Where will Blockchain make the biggest impact in the next 5 years?”
Moderating this Blockchain securities panel, Fabian Vandenreydt, Global Head of Securities, Innotribe and the SWIFT Institute at SWIFT said: “The journey to DLT is not a sprint, it is a marathon”. The evidence for this modus operandi is reflected in the findings of SWIFT and Accenture’s recently published DLT paper, which analyses the opportunities and challenges of DLT in financial services and identifies key factors for success. The research outlines eight critical factors that will pave the way for widespread adoption: strong governance, data controls, compliance with regulatory requirements, standardisation, identity framework, security and cyber defence, reliability and scalability.
So where do we go from here? Throughout the day, there was strong consensus that the time for “mutualised education” and “tangible output” is now. With a “strong distrust in labs in backrooms”, Hampson encouraged banks to experiment on projects that can drive a profit, monitor the technological developments and “watch for unicorns.” Similarly, Angus Scott, Director Product Strategy and Innovation at Euroclear, made the case for experimenting with real customers, regulators and stakeholders: “You can’t predict what the end state will be like. Many iterations are to be expected.”
Additional research will be an integral ingredient in Blockchain’s development. Vitalik advised audience members not to overlook academics who are rapidly evolving distributed database theory. Two academic research papers have recently been commissioned by the SWIFT Institute from experts at Gresham College, Loughborough University and the Leuven Institute for Research on Information Systems, with the first one recently published on “Blockchain for securities”. Governments are also taking this tack.
Just this week, the European Parliament’s committee for economic and monetary affairs approved a report on new technologies in financial services, including virtual currencies and distributed ledger technology. Drafted by German MEP Jakob von Weizsäcker, the report articulates the potential of VCs and DLT to “contribute positively to consumer welfare and economic development” by enhancing payment speed and lowering transaction costs.
Is all of this evidence that we have we moved beyond the hype? Gauging from recent research, emerging banking initiatives and the conversations at SWIFT’s Business Forum London, the hopeful answer is: YES – and this is a positive step for Blockchain. DLT is at a pivotal point in its maturity where the opportunities for experimentation and collaboration are great – and the rewards potentially greater. Tweeting live from the conference, Peter Vander Auwera, Co-founder of Innotribe at SWIFT, aptly summed up the prevailing sentiment: “Playtime is over, show me the value.”