IBS Journal December 2016
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There are, of course, barriers to overcome, including security and customer trust issues. And there are concerns about how to reach a standard API, enabling FinTechs to connect to them all. Brexit has also muddied the waters, although it appears that the UK’s banks are pressing ahead with their PSD2 compliance plans regardless.
But the fact that we are talking about this at all means that the revolution is now an inevitability rather than a possibility and, perhaps in the very near future, we could find ourselves on the precipice of an open data world, forcing banks to work harder to earn consumers’ business, no longer protected as ‘too big to fail’. Wouldn’t that be grand?
Rockin’ around the block
It’s hard to quantify the progress that blockchain technology is making, considering a lot of the testing and development is done behind closed doors. The subject continues to enchant people from across the FS sector, as evidenced by extensive workshops, seminars and talks at Sibos 2016. The quest, it seems, has moved on from “what is a blockchain” and is now “how do I use a blockchain?”
The R3 consortium, the largest and perhaps most recognisable blockchain collaborative, has seen a steady rise in members throughout 2016 and the release of its pilot system Corda has been the first real glimpse into a tangible use for the technology. Despite the “all for one” nature of the consortium there have been rumours of bigger banks squirreling away patents and experiments, trying to stop their smaller colleagues making a breakthrough.
The mountain of press releases received by IBS Journal this year aside, the industry is yet to see a truly workable solution powered by blockchain. Banks have begun sending pennies to eachother cross-border or setting up smart contract- powered transactions. As impressive as these first implementations are, it becomes a much different beast when large sums of money are involved.
Geographically, the excitement has been more palpable in the US, where banks are so keen to find
a use for the technology that they’re creating as many regulation-free sandboxes as possible. Their European counterparts, however, have been slower on the uptake, hoping to establish a workable regulatory structure before committing to full-speed invention. Russia, meanwhile, has been flitting between banning and embracing blockchain throughout the year – stuck between missing out on new technology and wanting to keep full control of its banks and currency.
One delegate that IBS Journal spoke to at Sibos 2016 said the hype is almost stifling. Companies are scrambling to find something they can build a blockchain into without wondering whether their legacy systems are doing the job just fine. 2016 has been a proving ground for the technology, a high-water mark. 2017 will probably see a receding of the hype – after all, if a technology doesn’t become mainstream within a few years of its discovery then it’s useless, isn’t it?
Bitcoin: the flip of a coin
The story of Bitcoin is usually centered around the rise and fall of its pricing. The cryptocurrency has taken somewhat of a backseat in 2016, being overshadowed by the system built to distribute it, the blockchain. Despite this Bitcoin exchanges have been cropping up the world over, while startups keen to capitalise on the currency have been getting millions in funding.
Bitcoin experienced its second-ever “halving” event in 2016. Hard-coded into the cryptocurrency’s rulebook to occur every four years, or 210,000 blocks of transactions per second, the halving essentially reduces the reward that Bitcoin miners gain from creating blocks on the blockchain. The electricity and processing power needed to mine a single Bitcoin costs each miner around $200, and the sudden drop in reward left some mining companies floundering.
“Halving” aside, a number of major events have seen the currency rise to prominence and break the fabled $700 value barrier. The devaluation of the yuan sent the market spiralling upwards as Chinese investors plumped for Bitcoin to protect their savings. China, home to the largest concentration of miners, continued to have a hand in the fortunes of the cryptocurrency. Then came Brexit and the resultant market crash. Where traditional sectors
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