Did blockchain mania peak last year? Twelve months ago it was standing room only at a workshop entitled ‘Blockchain – Beyond the Hype’, held at the 2016 SWIFT Business Forum London; enthusiasm helped by the financial messaging services provider having just published its position paper on distributed ledger technologies (DLTs).
By contrast, at this year’s Forum two weeks ago there was a smaller audience for the workshop ‘Blockchain – Addressing Real World Challenges’, although this could mean that 12 months on, much of the mystery that once surrounded the topic has since dissipated.
As session moderator Göran Fors, deputy head of investor services at Nordic banking group SEB noted: “Two years ago at a major conference, there was little knowledge of what blockchain was, or what it meant. There has since been a surprising amount of discussion on the technology and its potential uses, so the question has moved on to ‘what should we do with it?’”
The panel session began with an audience poll of attitudes towards DLT employment. Around two in three delegates agreed with the premise that the financial services sector’s adoption of blockchain/DLT is going to happen; the only unknown being how soon. Just under one in three believed that several still-unanswered questions had to first be addressed, but only 6% believed that it was unlikely to become a reality “anytime soon”.
Fors summarised the main question awaiting resolution as “has blockchain found its role in life yet, what problems could it potentially solve and which areas could it be useful in?” However, a question from the audience suggested that the solutions now being promoted by vendors such as the R3 consortium, Ripple Technology and D+H no longer have much in common with the original conception of blockchain. Michele Curtoni, head of emerging technologies strategy at the London Stock Exchange Group (LSEG), agreed that blockchain is “something of a mishmash of various technologies”, likening it to the many leaves of an artichoke.
According to London-based start-up RISE Financial Technologies’ chief executive officer (CEO), Thorsten Peisl, the ability of blockchain to improve trading and settlement will vary from one type of asset class to another, as each has its own individual problems and both the issuance process and settlement process have room for improvement. “We can establish a solid baseline on which to build smart contracts, but we first need to have the underlying infrastructure in place,” he suggested.
Fors wondered whether there actually was a problem needing to be solved by blockchain and suggested that settlement already worked reasonably well, but Michael Foley, head of blockchain research and development at tech group Equiniti responded that there were various inefficiencies that could be addressed, while Curtoni added that the proof of concept (PoC) process identifies where problems lie and how they might be addressed. “The technology can then go beyond devising solutions and help develop new business opportunities.”
The discussion moved to regulation of blockchain and the likely stance that the regulators would adopt, with an audience poll showing just over half expecting that they would be “actively giving direction”. The remainder divided equally between those anticipating a “noticeably passive” regulatory stance and those who felt it would be neutral.
“It’s unlikely that the regulator fully understands the technology, so they’d do better to facilitate rather than regulate,” suggested Jeroen van Oerle, trend analyst for the Netherland asset management firm Robeco. “For instance, the Dutch regulator still sees blockchain and DLT as being associated with Bitcoin and is suspicious of it.”
Peisl said that RISE’s discussions with regulators, whose basic position was that they regulate the outcome, but not the process of fintech development. He suggested that their best approach would be to keep regulation updated to reflect the evolution of the technology. “Regulators want to be able to point the finger in the event that something goes wrong,” he added.
Moderator Fors’ own view was that regulators now consult with the fintech industry far more closely than they used to and monitor market developments in deciding whether any action is necessary, while Curtoni noted that “many of the disruptors have never worked in the industry they’re aiming to disrupt” so the regulator must sometimes act to modify changes outside the central aim of making businesses more efficient.
Peisl believes that there are several roles for SWIFT to play in the DLT environment. “There is, for example, a standard missing as regards the way in which different DLTs communicate with one another and also for how DLT systems work with legacy systems,” he said, while van Oerle said that he doubts there will ever be one single, globally-accepted blockchain standard.
“So is the industry working together, or are there a lot of fragmented standards?” asked Fors. “At the end of the day, we need a governance provider,” said Peisl. “The standard needs to evolve over time and decisions made over just what changes are put in place.”
The session concluded with a mention of the Australian Securities Exchange’s (ASX) work with New York-based Digital Asset Holdings, which are working on a distributed ledger-based replacement for ASX’s existing settlement system. Work began on the project last August and its outcome could serve as the “barometer of success” for the new technology.
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