Blockchain: be ready to ‘fail fast and fail cheap’
Correspondent bankers have been advised to “fail fast and fail cheap” when it comes to blockchain technology. During the Blockchain and correspondent banking – The way to go? session yesterday, a panel explored the possible use cases and barriers to adoption of blockchain technology – one of the most talked about technologies at this year’s event.
Mark Buitenhek, global head of transaction services at ING (and the man who recommended fast failure) said: “We experiment with fintech firms and new applications in this field all the time.” The Dutch bank is a member of the R3 consortium and has been working on know your customer (KYC) projects. It is also working with the Dutch Government on a digital identity project.
Jon Lloyd, managing director of treasury services, Emea at JP Morgan, talked about a project his bank has piloted to move money between its London and New York offices using distributed ledger technology (DLT). He also cited UBS’ Utility Settlement Coin (USC) as an interesting digital cash equivalent project that isn’t a completely decentralised crypto-currency like bitcoin – no doubt to the pleasure of Alex Batlin, innovation manager at UBS’ FinTech Innovation Lab, who was also a member of the panel.
“Trade finance and cross-border payments are natural end uses of blockchain,” said Batlin. Other “low hanging fruits” identified by James Wallis, vice-president of payments and blockchain at IBM, were a variety of reconciliation end uses. “We also went live three weeks ago on what we believe is the first enterprise hyperledger project in the world,” he added. “It’s for dispute resolution between us and business partners covering about $100 million every day. It’s released about $50 million in working capital for us each day.”
There are still many barriers to adoption, however, including fears about settlement finality if there is not one single entity in charge of the blockchain. Also, there are concerns about the wisdom or otherwise of using a public blockchain and about cyber risks. The panellists also voiced concerns that if a permitted or trusted consortium model is followed, it must be connected to other such value chains to ensure the technology still offers simplicity, cheaper operating costs and the other expected benefits.
The moderator of the Sibos session, Gideon Greenspan, founder of MultiChain, an open source private blockchain platform, also referred to an attack that drained $60 million out of The Decentralized Autonomous Organization (DAO), a project built on the Ethereum blockchain, this year. It was targeted by cyber criminals, “which was unfortunate for investors”, said Greenspan “but useful in terms of learning lessons.”
The lack of standards was a concern too. “That is why permitted blockchains are preferable as there is more opportunity for rules and standards and to effectively get a central clearing house,” said Mark McNulty, global head of FI payments and clearing, Citi.
The session came to an end with a live poll vote asking audience members to vote again, as they did at the beginning, on whether the blockchain in correspondent banking will be: revolutionary (19 per cent vs 26 per cent initially); evolutionary (61 per cent vs 50 per cent initially); not sure (14 per cent vs 20 per cent initially); useless (6 per cent vs 4 per cent initially).
By Neil Ainger, Daily News at Sibos reporter