By Ian Edwards
Explosive Growth in Investment, but Few Projects Commercially Viable
The report, entitled Blockchain Adoption in Capital Markets—2018, says that one in ten of the banks and firms studied have blockchain budgets greater than $10 million, while the number of employees working on blockchain projects doubled in 2017.
Top-tier firms have an average of 18 full-time employees working on such initiatives. The firms studied are looking to use blockchain primarily to cut costs, although finding new revenue opportunities, shortening settlement time, and reducing risk and cost of capital are also said to be of interest.
Payments and trade finance are the most common areas in which businesses are looking to apply blockchain and distributed ledger technology (DLT).
Richard Johnson, Vice President of Greenwich Associates and author of the report, said:
“More than half the executives we interviewed told us that implementing DLT was harder than they expected. Nevertheless, more than three-quarters of projects currently under development are expected to be live within two years.”
The research underscores the continuing interest in blockchain by the financial services sector, and also how far off widespread implementation is: only 14 percent of the firms studied said their blockchain product was ready for commercial use. Those who follow enterprise blockchain development and the related cryptocurrency markets are likely unsurprised by the fact that the actual implementation of the technology lags the hype.
Blockchain in Finance Sees Plenty of Speculation, Not so Much Progress
Blockchain has a plentiful supply of speculation. The financial services industry has long been considered likely to be among the first industries to adopt blockchain technology on a large scale.
Yet, despite the numerous announcements and ambitious plans, the actual use of blockchain technology in the industry is fairly limited. Finance companies have been dabbling in various blockchain projects for years, but their work has born little fruit.
The company that perhaps best represents the yet-to-be-achieved promise of blockchain in finance is Ripple Labs. Ripple has been building a payment network since 2012 and released a polarizing cryptocurrency called XRP.
The company and Santander announced last March that the bank had launched a pilot cross-border payment app using Ripple’s xCurrent and RippleNet platforms. However, payments company Western Union has been testing Ripple’s xRapid service, which uses XRP, and the CEO recently said that the system is still too expensive. That came as the chief cryptographer of Ripple, David Schwartz, said that banks are still not ready to use DLTfor cross-border payments due to privacy and scalability issues.
R3 was recently the subject of a Fortune story that said the firm is having financial difficulties that are clouding its future. Founded in 2014, R3 has been developing DLT platform Corda for use by banks and financial institutions. Despite the rumors of financial concerns, R3 still raised $107 million in May of 2017 and Reuters reported several weeks ago that the firm had received $15 million in new funding from three investors. Though less than the $200 million that some reports said R3 was aiming for, total investment in R3 in the last twelve months has been more than $120 million.
Ethereum also has enterprise versions of its public blockchain protocol, organized around the Ethereum Enterprise Alliance, which has hundreds of members from a range of industries. The finance industry-focused version of Ethereum is called Quorum, which is being developed by JPMorgan. A report in March said that JPMorgan was considering spinning off Quorum in hopes that disassociating it from the bank would increase its appeal among the bank’s competitors.
Another open source protocol called Hyperledger is being developed by the Linux Foundation with backing from IBM. Its financial services offerings are aimed at trade finance, insurance, clearing and settlement, and bank guarantees. Back in October, IBM announced it was partnering with blockchain startup Stellar to incorporate a cryptocurrency into a cross-border payments system.
Beyond these protocols, there is also the Utility Settlement Coin, which is backed by major banks like Barclays, Credit Suisse, and HSBC and is described as “an asset-backed digital cash instrument implemented on distributed ledger technology for use within global institutional financial markets.”
The Greenwich report is a reminder that while blockchain progress in the finance sector is slow, it is gathering increasing interest and support. And with the field wide open, it will likely be years before one or more protocols become codified in the industry.
What’s your take? Are banks too slow to utilize the benefits of blockchain technology?
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