Separating Blockchain Reality from the Hype
For instance, we continue to hear of successful tests of multiple distributed ledger systems covering the settlement of a wide range of financial transactions. We also hear about groups like R3 CEV and Digital Asset Holdings forming partnerships or continuing to add to a consortium of global banks interested in blockchain technology. But when are we really going to see distributed ledger technology move from the testing phase to full production?
According to Steve Wager, executive vice president of operations and development at itBit, 2015 was the year of education on distributed ledger technology, 2016 will be the year of proof of concept with a fraction of providers and by 2017, we will see particular use cases head into production.
Speaking of providers, Leanne Kemp, founder and CEO at EverLedger, operates a firm that leverages distributed ledger technology (using both permissioned and permissionless ledgers) to introduce transparency into the sale of diamonds across international borders. The technology used in the verification process has only become cost-effective within the last two years.
Some providers are also trying to use blockchain technology to bring the more than 3 billion unbanked individuals into the formal financial system. As Jalak Jobanputra, founding partner at FuturePerfect Ventures noted, the key to blockchain is that it can be accessed using a variety of services, such as mobile. This is occurring in Africa, for instance, where efforts are being made to identify individuals so that their credentials can be transferred using the blockchain and verified.
Education is still critical, however, even as we have moved on from 2015. There are four levels of understanding, according to Brian Forde, director of digital currency at the MIT Media Lab. They are: Blockchain technology is a crazy idea and why bother? It’s crazy, but interesting and smart people are talking about it. OK, I get it … I can see the world through bitcoin/blockchain eyes. And, finally, “nirvana.”
Regulators are nowhere near nirvana at this point, but they are making an effort to understand the technology. Margaret Liu, senior vice president and deputy general counsel at the Conference of State Bank Supervisors, a Washington, D.C.-based organization representing the interests of state financial regulators nationwide, said her organization has spent a considerable amount of time and effort to become familiar with the technology and its potential as a tool for regulatory authorities to monitor transactions.
Liu encouraged firms to open or maintain a dialogue with regulators about blockchain technology and the potential “RegTech” opportunity. She said that it has been tough to stay abreast of blockchain developments “as the use cases keep changing.” Regulators need to think about what the technology ultimately is and the risks that it may present, Liu said. She noted that while blockchain is innovative, the risk is the same, though the regulatory approach might have to change to “to meet what we’re regulating.”