What to expect from blockchain in 2016
2015 was a stellar year for blockchain. Virtual money was certified by the US Commodity Futures Trading Commission as a commodity; two dozen of the world’s largest banks joined forces with R3 to work on rolling out blockchain across financial markets; and central banks from the Bank of England to the Federal Reserve voiced their interest in applying the technology in the real world.
Meanwhile, on the last day of the year, Nasdaq documented the completion a successful private securities transaction via its distributed ledger-based Linq platform.
It seems there is no limit to where this technology could take us in financial services. But where is it all heading? What’s in store for blockchain in 2016?
First, Nasdaq's successful blockchain transaction is just the start. Although a private market transaction, there is hope that this approach could be applied to speeding up settlement times in public markets.
The next thing of note is how blockchain is shifting from outsider to insider status. That process has been happening all year but will accelerate in 2016.
“If we think back to how it was perceived a year ago and then how it is understood today, it’s clear that another transformation is happening,” said Visa Europe in a post. “2015 has turned blockchain into something the industry has to live with. It is no longer a choice anymore.”
The arrival of Sir David Walker, the former Barclays chairman, at the helm of blockchain-based payment processor SETL confirms the rising status. The platform launched in July and hit one billion daily transactions by October - City veterans are taking note.
Another facet of the blockchain story will be its arrival in capital markets in 2016. Adoption of blockchain across capital markets is now a case of “when, and not if”, argues Shagun Bali, a TABB research analyst.
She says early adoption will see blockchain used for syndicated loans as early as Q2 2016, although equity clearing may still be a decade away. “Within capital markets, a number of top use cases are coming to the fore, opening new opportunities for efficiency and generating revenue from greenfield projects, including private equity, interbank payments and corporate debt, among others,” adds Bali.
But there are potential hurdles to overcome, not least of which is how to transform all the interest, hype and attention generated in 2015 into something meaningful.
Visa says: “Proponents will have to further address the lack of trust, a challenge they have faced since their creation. Then, the challenge of turning these technologies to tackle more real-world scenarios, such as sending money overseas.”
Bali also notes regulatory challenges and that due diligence for defining industry standards with regards to settlement, counterparty and other transactional risks involved will be essential.
“As blockchain gains greater mainstream adoption, a strong regulatory framework will be necessary to maintain a balance between security and future mass-market blockchain scalability, a critical industry challenge that lies ahead,” she explains.