Blockchain will bring a radical rethink of banking - but not yet

Rarely has an emerging technology experienced both the levels of hype and the levels of anti-hype that exists around blockchain at the moment.

For every supporter proclaiming the distributed ledger technology as the future of banking, there is a critic decrying it as overblown and unworkable.

Anyone would think it was the Conservative party debating EU membership, for all the differing opinions.

Such arguments are increasingly typical for any technology that has the disruptive potential ascribed to blockchain. There will always be pioneers excited by the opportunity, and laggards who see it as a threat.

The common ground between the two is that it will take many years before blockchain becomes a mainstream technology in financial services – this is not an industry prone to rapid adoption of new technologies, as we have seen with the early reluctance around cloud.

This week a consortium of 40 banks announced successful tests of competing blockchain products in a wholesale banking environment. The main reason for their interest is the potential to take huge costs out of their back-office infrastructure – replacing the costly and complex financial settlement systems that make us all wonder why it takes days to clear a cheque.

If the claims of blockchain supporters are correct, the savings would be in the many billions across the sector.

Critics cite the complex regulatory environment as a blocker to blockchain, but the fear factor for them is the potential for blockchain to do to established banking hierarchies what Netflix did to Blockbuster, or what the web has done to print media.

To become a bank these days – even the many challenger banks now appearing – takes years and huge amounts of cash. Blockchain, if it works and continues to mature, could theoretically enable an organisation to set up a banking transaction network near instantly, if regulators allowed it.

The big banks involvement means there is plenty of money being invested in testing out the potential – but also acts as a brake against too much change too quickly. This is a technology that will take time to prove itself – correctly so, given the scale of the financial systems it could one day supersede.

Just as the web has not entirely killed print, blockchain will not entirely replace the status quo. Context is everything in assessing its true potential. But it’s certain that blockchain is going to bring a radical rethink of how the banking sector of the future will look.

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