The blockchain train has left the station

42 major banks have now tested five blockchain technologies

If 2015 was the year everyone was talking about blockchain, this will be the year that everyone builds on it. In the last few months since blockchain hit the cover of the Economist, there have been dozens of announcements trumpeting the benefits of blockchain systems, ranging from proprietary technology developed by Overstock.com and which it plans to use to issue public shares, to open-source technology developed by IBM on the Linux kernel to be freely shared between developers.

To say that the financial services industry is nervous as a result would be an understatement. For decades, banking transactions have been kept on private ledgers that only the institutions could control. Blockchain is changing that system and shaking up the status quo…meaning that financial institutions can either figure out a way to get on board or get left behind.

In simplest terms, a blockchain is a public distributed ledger of financial transactions that all participants can view, but which no single user controls. It is secured by a collective user’s agreement of strict rules and facilitates a currency or transaction, such as Bitcoin, without the need for a central bank. One of its goals is to maintain the privacy of users, so the datapoints banks usually collect on customers are mostly omitted in a blockchain system.

Banking institutions are some of the most slow-to-adopt-change companies in the world. There’s no question that they view blockchain technology as a barreling freight train that they may be powerless to stop. Since they are conservative by nature, perhaps we shouldn’t be too surprised that a consortium of banks is hedging their bets on the future.

Earlier this month, 42 major banks tested five blockchain technologies (Eris Industries, Ethereum, IBM, Intel and Chain) in a trial staged by R3 CEV, a financial technology startup based in New York and London. In doing so, banks such as New York Mellon, Citi, Deutsche Bank, JP Morgan, Wells Fargo and others made a clear statement: they intend to figure out how to leverage blockchain systems in order to ensure their future in what will surely be a very different financial world in years to come.

This wasn’t the first time a financial institution tested blockchain. NASDAQ unveiled its proprietary Linq blockchain platform in October 2015, and startup Chain used it in December to issue shares to a private investor.

So where are we heading, now that the blockchain train has left the station? Here’s what my crystal ball says we can look forward to during the remainder of 2016:

1. Standards development can’t be far behind the 42-bank pilot test

With so many different ledgers, we’ll either need protocols or a standard communications layer that will enable systems to cross-talk. This is reportedly already in the works.

2. Banks will continue to participate in blockchain tests, but look for them to build proprietary blockchain platforms

They will play nice in the development sandbox, but ultimately, they will look for ways to shore up their individual assets.

3. Blockchain technology will move more quickly into related industries

Real estate is a natural fit, where private exchanges could speed up transactions.