Are financial institutions ready for the blockchain?
One of the best examples of bank's relationship with virtual currency was when two big Australian banks shut down the accounts of 17 bitcoin companies based in Australia. Other countries' financial institutions have an even rockier relationship with bitcoin. In Russia, its Ministry of Finance has campaigned in the past to ban bitcoin entirely and sentence its user to hard labor.
However, when it comes to the blockchain, it's a bit different. Those same banks that shut down the bitcoin accounts were also testing out various use cases for the blockchain in the world of big banking. Financial institutions, are however still plagued by certain misconceptions related to the technology, according to Marc West, chief technology officer, Fiserv.
Marc said financial institutions tend to think the "blockchain is only use for 'bitcoin' transactions" or "by geeks to avoid banks." Other institutions believe that the blockchain cannot scale to meet their needs.
"A second popular misconception about a public blockchain is it is a distributed database where information can be stored within the chain," Deva Annamalai, director of innovation and insights, digital banking group, Fiserv, said in an email. "While a blockchain may allow storing small pieces of information related to a transaction, it should not be construed as a replacement for a traditional relational or document database."
These misconceptions are unfortunate because they may keep financial institutions from realizing the full potential of the blockchain.
West brings up four key benefits of the blockchain:
- It is an integrated ledger solution;
- It enables real-time insights into transactions through a shared ledger;
- Its record can't be changed and there is a "verifiable audit trail of digital assets; and
- It is secure through encrypted information and provable parties.
Annamali also argues that, "Blockchain transactions can reduce transaction times to minutes and can be processed 24/7. This feature enables interbank transactions to occur much faster, eliminating the processing time that can take days for clearing and final settlement, especially outside of working hours."
Despite these benefits, there are still barriers to widespread acceptance of blockchain technology with institutions. West mentions that peer to peer networks requires all participants to "agree on basic network rules to interact." However, we are still in the early days of network rule development and there are multiple competing standards.
"The complexity and the speed of changes in cryptocurrency technologies are proving to be a challenge for mass adoption. Due to the nature of blockchain-enabled applications, unless enough players collaborate to launch a solution, most efforts stall due to lack of momentum. On the other hand, when the right solution implemented on blockchain surfaces, it will reach a tipping point of adoption," Annamali said.
Annamali also mentioned that many people are trying to solve problems with the blockchain that they could solve more easily with relational databases. Organizations need to examine and see if the blockchain is a relevant solution to their issue.
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Bradley Cooper is a Technology Editor for DigitalSignageToday.com. His background is in information technology, advertising, and writing.www