Will Blockchain Banks Deliver in 2018?
Blockchain technology -- shared databases with a layer of cryptography that allow a digital ledger to function as never before -- has taken the world by storm the last couple of years.
Initially, bitcoin (and the blockchain that underlies it) posed a challenge to the banking establishment and was met with criticism. As recently as 2013, the incumbents of the financial sector were shutting down bitcoin businesses and openly condemned the fledgling technology. Fast forward to now, and the tune has changed. You’ll find everyone from big corporate banks to bootstrapped fintech startups working to implement blockchain solutions.
We’ve reached a point where mentioning blockchain and banking in the same sentence almost immediately sounds like a cliche. But this particular cliche deserves our attention. There are two things going on here. Banks and legacy financial institutions are scrambling to get on the blockchain bandwagon and new players are working feverishly to disrupt the existing order.
Established banks tend to approach a new blockchain venture with the formation of consortiums of like-minded companies. Then they conduct a “proof of concept” or develop a prototype to test the new technology. This is being done with clearing & settlements, payments, trade finance, and identity (to name a few areas). Payments are the best-known and easiest to understand use case. Ripple, with its underlying payment processing solutions and native asset (XRP), is arguably the leader in the race to become the payment processing agent for the existing financial infrastructure.
Related - Accenture How Banks Are Building a Real-Time Global Payment Network.
But for existing banks, blockchain presents a double-edged sword. From one perspective, banks love the idea of reducing cost, increasing speed, and cutting out inefficiencies. In fact, according to one analyst, cheapness and speed are the primary reasons banks want to use blockchain. But from another perspective, they’re leery of truly decentralized systems that could challenge their locus of control. They’re also moving relatively slowly, opening the door for nimble companies with innovative ideas to start their own blockchain-based banks.
As is often the case, the ground floor is where some the most exciting developments are happening. And to avoid being myopic, one needs to consider more than what the big players are doing.
If you survey the current landscape, you’ll see the blockchain banking space is awash with up and comers. You’ve got:
Babb, “a decentralized world bank for the micro-economy”.
Crypterium, “a cryptobank creating the future, today.”
Coinsbank, “a one-stop-shop for consumers looking to access blockchain services”.
Change Bank “a global cryptobank offering a wide range of financial services.”
Swissborg, “the first wealth management platform for cryptos based on the blockchain”.
And, this is just to name a few.
Each of these projects is taking a different approach to roughly the same goal. They’re using blockchain to build financial infrastructure, products, and tools that position them for the future. A future where cryptobanks are the integral link between a decentralized economy and daily life.
All have lofty aims and use hyperbolic-sounding language, but this is what we’ve been hearing for the last couple of years, and so far results have been underwhelming. If you consider the lack of implemented blockchain projects along with the subsequent silence around most of the trials from 2015-2017, the implied confidence that useful solutions are almost here starts to weaken.
The future is hard to prognosticate, but many people will tell you that more time needs to pass before many of these solutions are ready for the “prime time”. The pessimists size up 2018 and see little more than empty announcements and mindshare positioning in blockchain banking. They talk about how noise will continue to increase, (driven by token sales, marketing, and PR) and how this could hinder progress.
It may not be difficult to argue against short-term success, but there are also reasons to be hopeful. Those with a more positive outlook say that 2018 is the year that the wheat starts to separate from the chaff.
Their argument runs like this. As time passes it will start becoming more obvious which projects are viable and which aren’t. Regulatory roadblocks, technical hangups or a simple lack of adoption will sideline many ventures. Leaving the talent, energy, and resources to be concentrated behind only the most viable. This trend could lead to exponential growth and some quantum leaps forward. This group foresees more launches in 2018 along with big partnership deals and impressive adoption statistics. They see flashes of potential starting to solidify into something of real substance in the near-term.
Will blockchain banks deliver in 2018? Will some of the names on our list above grab the limelight? Only time will tell us which group has it right, but as we enter the new year one thing is certain. The banking world has perhaps never been more poised for change.
Related - Forbes: Practical Examples Of How Blockchains Are Used In Banking