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More than $1bn will be invested by financial businesses in blockchain, the ledger technology behind bitcoin, over the next two years.
A study by technology industry consultants Magister Advisors found the top 100 financial institutions worldwide will be spending money on blockchain technologies in the next two years, with many leading banks currently running between 10 and 20 blockchain projects.
According to the research, banks are not necessarily using this technology to replace core infrastructure, but to work alongside it by storing metadata surrounding settlement and clearing.
“Blockchain is, without question, the most significant advancement in enterprise IT in a decade, on a par with big data and machine learning,” said Jeremy Millar, partner at Magister Advisors and research lead.
“What Java is to the internet, blockchain is to financial services,” he added.
The technology has the potential to address other needs in the financial services industry, such as direct payments, security infrastructure and property registries. Millar predicts blockchain will become “the default global standard distributed ledger for financial transactions”.
More than one million bitcoin transactions are made daily, and those surveyed believe it will become the sixth largest global reserve currency by 2030.
Blockchain was originally created to act as a database to allow bitcoin transactions to take place, acting as a ledger for transactions involving the virtual currency.
However, as highlighted at the 2015 Sibos event in Singapore, financial institutions have become much more receptive to the introduction of blockchain technology since it has become progressively separated from the widely distrusted bitcoin currency.
Banks are realising they have to get on board the blockchain bandwagon, and research found some blockchain companies are signing seven-figure contracts with financial institutions.
But banks are often accused of clinging on to legacy infrastructure, finding it difficult to introduce technology and using workarounds to integrate the latest systems with old ones.
“Banks will initially be unwilling to remove the core infrastructure that handles the process of clearance and settlement, but they will increasingly run parallel blockchain processes,” said Millar.
“Blockchain technology will underpin a growing number of routine transactions worldwide as trust grows. Growing supplier acceptance and the adoption of bitcoin in developing markets are creating a pincer movement that will lead to widespread business and consumer acceptance and adoption over time.”
Read more about blockchain
- The Royal Bank of Scotland is among the early adopters of distributed ledger technology that could shake up the banking industry.
- IBM holds informal talks with some central banks about building an infrastructure that can provide them with bitcoin-like digital payments systems.