Understading Why Block Chain Matter
There are two aspects of block chain technology that have captivated so many C-level executives, startup founders and private equity firms around the world.
First, block chain could make the financial services industry’s infrastructure much less expensive.
And second, the list of potential uses is almost limitless, from financial transactions to automated contractual agreements and more.
Block chain system could be far cheaper than existing platforms but because they remove an entire layer of overhead ledger system confirmation is effectively performed by everyone on the network, simultaneously.
This so-called ‘consensus’ process reduces the need for intermediaries who touch the transaction and extract a toll in the process. In financial services, that include those who move money, adjudicate contracts, tax, transactions, store information and so-on.
The sheer range of application has attracted FinTech providers and legacy firm who hope to develop solutions both narrow and broad.
In the next three to five years we see transaction volumes and the associated profits pools shifting from intermediaries toward the owners of new highly efficient block chain platforms.
These transactions could include transferring digital or physical assets, protecting intellectual property, and verifying the chain of custody in an era of cyber-crime and stringent regulatory requirements, a highly frauds-resistant system for protecting and authenticating almost any kind of transaction could have a revolutionary impact on the financial services industry.
Trusting Block Chain
Trust does not occur overnight. This is the challenge facing both individual institutions and the industry as a whole.
For block chain to be adopted on a large scale, we will need to experience a migration of trust from today’s effective and expensive central counterparty utilities to the distributed model.
The business benefits for many players, or even the industry will not materialise if the trust issue is not addressed effectively.
Some of the hurdles that lie ahead; understanding whether or not the public ledger can be hacked, and navigating potential regulatory challenges related to block chain’s adoption.
For instance, while on the network simultaneously, if a majority of the participants forming the network consensus model were to collude to transact a fraud, a ledger might be manipulated.
This might be an issue in a relatively small network proper vetting procedures.
We also see a need to address security limitations with linked technologies like the external systems that monitor events to trigger block chain transactions once condition have been met.
Still, this is a participatory sport and there is a lot to lose from sitting on the sidelines.
Now is the time for testing, planning and learning.
Given the extraordinary range of options and potential technology partners, one of the bigger challenges is to sort through the type, once you have a clear vision of where to apply the technology and why, it will be easier to create a workable implementation plan for building block chain into your infrastructure.