Status: Draft -- Not PublishedWill be live at 11/16/2015 00:00
Banking on the Blockchain: Re-engineering the Financial Architecture
Monday, November 16, 2015
Blockchain technology, once viewed as a profound threat to financial intermediaries, is now being embraced by traditional financial services firms as a way to reengineer financial industry infrastructure to their advantage. The industry, working both independently and in partnership with newer players, envisions the technology as a mechanism for lowering costs, reducing risk, introducing new products and freeing up capital. This paper explores the immense potential of blockchain technology, as well as some of the challenges it poses to the industry and regulators.
- The blockchain-the distributed public ledger behind Bitcoin-is widely recognized as an innovation with substantial potential to disrupt financial services.'
- The technology's potential to impact the finance industry across a variety of use cases is significant because virtually any type of information can be digitized, codified and placed onto the blockchain, a database that is tamper-proof, permanent, and whose validity is confirmed by the consensus of a community of computer users, rather than by a central authority.
- Traditional financial services firms are becoming increasingly active in the space and investing significant resources in an attempt to find possible ways to transform several of the sector's most inefficient procedures and in the process cut billions of dollars in costs.
- While no clear blockchain model has been adopted by the banking industry and most executives remain open to all promising options, a large number of them remain wary of Bitcoin's open, fully decentralized model due to myriad of reasons, including anonymous transaction validators and Bitcoin's association with volatility, instability and illicit activity.
- Critics maintain that there are numerous obstacles preventing a blockchain-driven financial ecosystem from emerging, including governance and incentive systems, regulatory and legal challenges, interoperability issues, and the cost of overhauling legacy infrastructure.