By: Patrick Lastennet
Titled ‘Blockchain: Beyond the Hype, the discussion sought to separate the hype and noise from the real industry adoption and tangible use cases. Chaired by Professor Michael Mainelli of the Z/Yen group, the panel included Hirander Misra (GMEX), David Lee (BCS Consulting), Lee McDonald (London Metal Exchange), Thejasvi Kedambadi (Euroclear) and Oliver Naegele (Blockchain Helix).
Over the course of a spirited and pragmatic debate the panel covered a wide variety of pertinent topics, ranging from promising use cases to the inevitability of regulation. Here are five of the key points and themes from the panel discussion:
The problems blockchain will help solve aren’t necessarily the ones you think
Blockchain has long been heralded as a nascent disruptor in the area of financial services, spearheaded by the original and most well-known public blockchain, Bitcoin. While payment services, particularly the long-standing inefficiencies involved in cross-border payments, is a potential use case, the panel didn’t see it as a major threat.
Professor Mainelli made the point that while SWIFT, the current international payments network, has its inadequacies, it functions well on the whole and the costs aren’t prohibitive. Hirander Misra reinforced this point by saying that even if blockchain were to displace SWIFT, there’s still an interoperability problem between different blockchains that would need to be addressed.
The panel discussed the point that blockchain projects targeting more obvious areas such as payments are perhaps going after the wrong problems. Oliver Naegele expressed his view that they should focus less on displacing what already exists and focus more on new areas of application where blockchain can fill gaps in the current system. More pertinent use cases discussed included identity management (which Oliver’s company Blockchain Helix is seeking to address), trade finance and supporting investment in developing nations.
Financial Services won’t rush in
The hype and excitement around blockchain in late 2017 gave rise to speculation that major financial institutions were primed and eager to dive into the space. ‘The herd is coming’ is a mantra often echoed around the blockchain world. The panel, however, was more restrained on the matter. While most industry players are well aware of the technology’s potential, the consensus remained that there’s a ‘wait and see’ approach being widely employed. Hirander made the point that major financial institutions would prefer to be the ‘second mover’ in the space in order to learn from the pioneers’ mistakes, therefore reducing the risk involved.
It was also pointed out that some financial institutions actually benefit from the existing frictions in the system, and so will be slow to change their models.
Blockchain doesn’t get a pass on regulation and governance
A major discussion point across the evening was the potential conflict between blockchain projects and regulators. Public (permissionless) blockchain projects in particular often operate across borders and jurisdictions, making it more difficult for regulators to hold the projects to account. The panel emphasised that anyone operating in the blockchain space must do everything they can to comply with regulatory authorities.
With regard to the impending GDPR regulation, the panel urged caution on managing any personal data on a blockchain. Distributed ledger technology is by nature immutable, and therefore any personal details should be capable of being removed and so should be stored off-chain.
The panel also discussed the wider issue of governance. David Lee made the point that while blockchain developers may pay close attention to technical governance, they need also to have a handle on operational governance. If and when regulators take closer interest in the technology, then dispute resolution and the potential for reversal of outcomes will be a critical focus. We therefore need a more objective approach towards rule-setting as we “just can’t let software vendors decide on regulation.”
Not everything needs a blockchain
The panel took a sober approach towards the notion of blockchain as a panacea for every problem businesses face. They emphasised that while the notion of decentralising database management is largely seen as a positive objective, in many cases a centralised database can run more efficiently.
Lee McDonald discussed his experience within the London Metal Exchange, which is yet to adopt blockchain technology. The company still use a centralised system for managing the commodities they trade (e.g. gold, silver, etc.), but are looking at incorporating blockchain for the purpose of timestamping and authentication. Lee said that the difficulties in managing a decentralised database, particularly in ensuring the data is valid in the first place, made it unlikely the entire system would be administered on a blockchain any time soon.
Blockchain is here to stay…but so are the companies it purports to disintermediate.
While the discussion across the evening was largely restrained as to the impact of blockchain, the panel was in agreement that the technology will still be here five years from now. The panellists agreed that we still have a long way to go, but the level of talent and innovation in the space heralded a positive future.
Will blockchain displace the existing financial system? Our panel thought not. Instead, the consensus was that blockchain would remediate rather than disintermediate the current infrastructure. Thejasvi Kedambadi spoke about the current system of settlement – which some believe blockchain could displace – and the value add at each link in the chain. He said that while this existing system is unlikely to be disrupted, there would be scope for experimentation in elements such as record keeping.
In order for blockchain to move into the mass market – and for the big money to enter the space - it was agreed that there was still a great deal of work to be done on infrastructural services, such as custody, key management and disaster recovery.
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