Blockchain: 2016 and Beyond

Today, our Blockchain & Cryptocurrency Specialist here at Payments & Cards Network, Lucas Schweiger shares his thoughts on Blockchain in 2016 and beyond. Lucas has a British / German background. He graduated from Maastricht University and United Nations University in Maastricht, with a BA in Political Science and a MSc in Public Policy & Development. He joined PCN on the 1st November and specializes in Blockchain and Cryptocurrencies. 2016 has been quite the year for the FinTech industry. This year, start-ups, companies and corporations have been inundated with innovations, tech developments, and investments. These developments pave the path to where our world is heading. At this rate, the perpetual growth of the FinTech ecosystem seems inevitable. The industry has coined buzzwords and terms like Artificial Intelligence, the Millennial Wave, APIs, Accelerators, Disruptive Innovation, Growth Hacking. And of course Blockchain and Bitcoin which are fast becoming commonalities in everyday discussions both in and out of the FinTech world. A large number would argue that 2015 was the ‘year of the blockchain’, but I beg to differ. Only 5 years ago, venture capital backed investment in blockchain and bitcoin companies. Investments increased from $3 million in 2011, to a staggering $475 million in 2015. This number has now tripled. According to PwC executive Seamus Cushley, financial and technology markets have “invested more than $1.4 billion into blockchain related start-ups over the last nine months". And this number will only continue to rise. Venture capital has been pouring into more than 230 blockchain start-ups. Most of these companies are classified within Financial services, Payments processors and Infrastructure (Coindesk). However, besides all this hype, understanding the concept and its implementation can be complex and tech-savvy to say the least. The idea behind it is actually quite simple. Blockchain is a technology that allows people to “sign” contracts electronically, without the need for trusted third parties (TTPs), such as banks or government institutions to verify the validity and legality of the contract. One of the most attractive aspects of this tech is the potential behind digital wallets and the adoption of digital currencies. Namely, bitcoin and other digital assets. The idea behind this is simple: fast, efficient, transactions that require no third party and confirmation with a rock bottom fee. In more detail, Blockchain is a distributed database utilized to record an ever-growing list of transactions. It is accessible and open to all, and doesn’t require any permission to gain access. It is a permanent record of transactions. Every single transaction is time-stamped and recorded. In essence, everyone can see what is in this database, but nobody can modify or erase it. Blockchain can thus effectively secure financial transactions, make them more efficient, faster, and prevent problems such as fraud and theft. The system protects itself with encryptions, or so-called “hashes” which are almost impossible to break. Even if someone were to breech the system, it would be obvious. So unauthorized modifications can be easily detected and cancelled immediately. A “fee” per transaction is thus little to nothing.  TTP require spending large amounts of money on maintaining and protecting the security of large bank databases. These TTP databases, filled with millions of private accounts information and financial holdings present a very attractive target for hackers. Blockchain is about decentralization. It is a technology that has the potential to be as disruptive as the Internet was to the post office. The ability to effectively decentralize the current financial systems is a powerful tool to say the least. Especially when the business models shifts to one that requires no intermediaries. And there’s the potential to install a global currency and a transparent infrastructure further down the line. However, it is vital to safeguard and adopt this technology in the correct way. An estimated $300 trillion in transactions move through global banking networks annually. With the idea of a global currency and ability to universally store transactional information it is no question that large banks have certainly become wary of this.

“This technology is real... the fact that we are now here having these discussions is evidence of to the fact that this technology potentially has profound implications not just in payments but far more broadly."
(R3, Brookings Round Table, Beyond Bitcoin, 2016)
In 2016, blockchain has most certainly caught the attention of the banking industry, where traditionally rival banks are now seeking opportunities and collectively working together to find a standard for blockchain technology. Although the likes of J.P. Morgan, Goldman Sachs and Barclays, Deutsche Bank and more have partnered through fintech firm R3 in search of a common ledger, and the possibility of incorporating “private” blockchains, the question remains a tricky one. Blockchain’s original goals focused on decentralization and the elimination of TTP. As a result, attempting to reshape this philosophy by running limited distributed ledger simulations may be costly and time-consuming. Additionally, it may have serious repercussions on the real potential that blockchain technology offers to the world.