Blockchain - The Reinvention of Financial Services - Part 1.

In the first edition of the bestselling book, Blockchain Revolution, by Don and Alex Tapscott, they said that within five years the industry will be unrecognisable. At the moment they are only half right in that regard, because it’s happened a lot faster.

I am starting a series of articles on Blockchain. The first one being on the subject of Blockchain and the impact on the Financial Services Industry. The main reason is because people have asked me a lot of questions on this subject and my personal interest, as my first job was in banking, it is an industry I have always followed closely. My aim is to address some of those, while also giving insights from my work with numerous startups and my cooperation with the Blockchain Research Institute.

Let′s dive into answering the questions:

Question 1.

How will this technology to be impactful in the Financial Services Industry?

Blockchain is going to have a big impact on corporations, but also individuals. There is going to be a huge change in terms of how people move money around the world. Not only in time, and how fast we are going to be using blockchain technology, but also how efficient it is going to be to send even small value payments. I grew up in Latin America, and know first-hand how it can be really painful for a small-villager to actually receive money from family residing abroad, which is normally quite a small amount. In future, having to deal with exchange rates, fees, banks, and any other intermediaries might become irrelevant. 

Micro-payments are one of those opportunities that people are quite excited about with Bitcoin. But then also think in a different direction; the intersection of Blockchain and the Internet of Things (IoT); the idea that in the future there will be trillions of devices, a lot of payments might not actually move between person-person or business-to-business, but could actually move machine-to-machine, and it may be a fraction of a penny. And that’s just not possible today. This is the kind of change that we’re going to see. Many startups are already working on it.

Question 2.

What is a Blockchain infrastructure? How does it fit into the ecosystem as a whole, and what are the services it will provide, or the problems it can solve?

I think probably the simplest way to explain it is, what we consider the difference between a payment solution, like Ripple for example, or a Bitcoin network, versus a general purpose process automation solution, which is what you could probably consider Ethereum to be. There are lots of processes that happen within enterprises, specifically financial services institutions for this context, that are not payments related. They’re updates in process, they’re updates in information. In many cases, these updates of information, what we call state changes of a blockchain, could trigger actions; they can trigger something else happening. So, whether it’s an update to a client’s record that then updates some sort of insurance policy, that then, eventually, triggers a payment – how do you record all these updates in state of information, such that you can track and record all of this on a consistent ledger? 

So what needs to be built is essentially the ability for organisations to create these networks, to create within an industry, a use case, a supply chain, create these networks that allow them to coordinate. Moving forward, the question is how do these networks interoperate with each other? 

Blockchains are essentially eliminating the barriers that used to exist between industries. So we stopped looking at things like, a financial services versus insurance versus healthcare versus IoT perspective and we realised that these things are going to be a lot more interactive. For instance, an IoT device that’s involved in maintaining or tracking a health behaviour that triggers some sort of insurance policy to a payment is one use case, and the ability to stitch that all together is where you really drive to the end goal and the end potential of this technology, you will not have to jump through groups of intermediates. An update of information can be the change of ownership of an asset, but it can also be something significantly more simple, like the update of information to somebody’s medical records. That’s a transaction on blockchain that requires scale - millions of transactions per second collectively. One network is not going to be able to manage that. Many networks need to be built for these purposes. And then they need to connect these processed across networks through an ILP type protocol. That’s where we see financial services start to become relevant all over the place. It becomes an imbedded portion of everything you do, where the payment just becomes inherent, happening on the back end of an application.

Question 3.

Will there be multiple blockchains in the Financial Industry? 

I am very bought into the fact that there will be many Blockchains build by industry, by geography, by use case, and then at some point processes are going to traverse Blockchain. There might be an update of information in a healthcare Blockchain, that eventually triggers a payment into the financial services Blockchain. Some startups are focusing on the creation of these networks, and then the interoperability between these networks so that one can have a kind of seamless flow of information without the need for intermediates to get involved to handle it. 

Just like the automotive industry, it started with one car, the model T, but then you saw a different model sort of come out there that specialised in different things. For instance, one of the technologies that Ripple is sponsoring is the Interledger Protocol (ILP). And what they are aiming to do is to make all the Blockchains out there interoperate. So you have the Ripple Blockchain, but you also have Ethereum, and every day I think there’s probably three or four more coming out, only some of these are going to be winners, but the key is going to be not to create other side ones, but to create something like the Internet, where they all interoperate; the ILP. This way there won’t be one Blockchain that takes the entire market.

The challenge lies on what needs to be done to make this technology work at scale, and for these different platforms to interoperate with each other in a way that can actually be used to address real, large business problems, like, say, cross-border sales, securities trading etc. 

Dear reader, 

now that you have made it all to the end of this article, please know that I wrote this article for you. I would like to hear from you and get some feedback. Send me your comments and questions. How do you feel about Blockchain? Is there something about Blockchain that you’d like me to address in next articles? 

About Daniela Killus

Daniela is a Digital Marketing Strategist consulting, mentoring and coaching business owners, entrepreneurs and leaders who want to start, grow or scale their business.

She has helped hundreds of businesses around the world achieve their goals. Daniela helps them by sharing everything she has learned about Online Marketing and Sales in the last 15 years, while building her own international digital marketing agency, managing her clients′s online marketing and her virtual team of experts around the world. Her strategies got her to be advising leaders at the WEF in Davos and also being invited to represent the renowned Blockchain Research Institute while leading a location independent lifestyle business.

About the Blockchain Research Institute

The Blockchain Research Institute is a multimillion dollar initiative; the largest of its kind globally, conducting the definitive investigation into blockchain opportunities, strategies, use cases, and challenges. Focused at business leaders, government leaders, and leaders in other institutions in the economy and in society. The BRI conducts investigations in everything from financial services to retail, manufacturing, and accounting, and also looking at some big questions a lot of people are asking right now – how a blockchain can interact with other technologies of the fourth industrial revolution, the IoThings, AI, concept computing etc.