Research: Banks could use bitcoin technology as early as next year
TABB Research has issued a report saying that lenders could adopt the technology behind bitcoin as soon as in 2016, upgrading the industry by enabling more secure transactions and creating new streams of revenue. It is a matter of when, not if, the report's authors say.
The technology of blockchain was developed to be used with the digital currency bitcoin. It acts like a huge, decentralized ledger that records every transaction and stores this information on a global network so it cannot be tampered with.
A consortium of more than 20 banks led by fintech company R3 is currently working upon a framework for applying blockchain technology to markets.
The report's writers forecast that blockchain solutions will be used to track syndicated loans by the second quarter of 2016. They added though that other sectors may take longer. For instance, applying blockchain to derivatives will require up to five years to develop, and using blockchain to settle share trading is ten years away.
Adopting blockchain technology would create more transparent and efficient systems to track and log financial transactions, or could improve upon existing systems used by banks, the report says.
"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," said Shagun Bali, a TABB research analyst and one of the report's writers, in a press release.
The study buoys findings made by the Bank of
England. In 2014, the U.K. central bank posted a report on bitcoin
and described the blockchain as a "genuine technological innovation", as it could let transaction systems work without an
intermediary and demonstrated that digital records can be stored securely.
Meanwhile, Bali also noticed a number of
challenges that will hamper blockchain technology adoption, such as the cost of integrating it into pre-existing systems.
"Further due diligence for defining
industry standards with regards to settlement, counterparty and other
transactional risks involved are critical," explained Bali.
Since blockchain is earning greater mainstream adoption, he said, a strong regulatory framework will be needed to maintain a balance between security and future mass-market blockchain scalability, a critical industry problem to be solved in the future.
