How close are we to T+0 with blockchain?
An interview with Oliver Bussmann, Founder of Bussmann Advisory
Oliver, how did you first encounter blockchain?
I first heard about blockchain in April 2014 when I met the entrepreneur Richard Olsen, who among other things was the co-founder of Oanda. I was CIO at UBS at the time, and Olsen came to us proposing to build an FX exchange on the Internet using a version of the Bitcoin ledger. His idea was that you could greatly simplify processes and reduce settlement to almost real time. This was new to us, but we ran a feasibility study and quickly realised the power of the distributed ledger. That led to us putting more effort into the topic.
What interests you about blockchain?
The blockchain has incredible potential and there are now countless use cases being proposed for it. But to simplify things, I think we can look at it in terms of core benefits. For example, the blockchain can facilitate decentralised transactions among many parties over the Internet. Unlike today’s Internet, these are not instructions about transactions, but the actual transactions themselves. That’s the essential difference. I think the blockchain could also go a long way to reducing fraud and increasing trust in transactions while also increasing security and, if done right, strengthening privacy. Finally, the blockchain has the potential to greatly increase transparency and efficiency in multi-party transactions.
Some call blockchain the “fourth industrial revolution” — how do you think blockchain will change how business is done around the world?
It will fundamentally change business in many ways, most of which we probably can’t imagine at the moment. It will mean new and more decentralised business models. This will facilitate disintermediation in all sorts of markets, making the middle man obsolete in many areas and dramatically simplify how we do business in financial services and other industries. This simplification in turn will reduce costs. Transaction costs for many things may well drop to near zero. That is game changing.
Do you think blockchain technology will ultimately be able to bypass today’s centralised financial infrastructure? Or do you see it as an avenue to complement centralised financial infrastructure?
I don’t think we are looking at a big bang scenario. Instead we’ll see a phased approach in areas of the financial services industry starting with everything in the post-trade space to know-your-customer applications to private placements in the IPO business. Over the next five to ten years the scope will continue to get broader. That said, I am not sure that banks will own these processes in the end. I don’t necessarily see a centralised system coming out of this. I think it is likely that clients will ultimately own the assets on the ledger, everything from financial assets to luxury goods through to anything that has a value and can be described. This will all be on the ledger and the client will own the key. That is the biggest change I can see.
Innovation has to be orchestrated. It has to be embraced throughout an organisation and it has to be continuous. Innovation is not a one-time event.
Which industries do you think are closest to implementing blockchain technology into their operations?
Financial services was definitely the first industry that got impacted with the Bitcoin topic. Due to the rather significant regulatory requirements in different jurisdictions, I am not 100% sure that financial services will be a front-runner over the short term when it comes to blockchain. It can be that other industries, for example those related to the Internet of Things or luxury goods or the energy grid or similar types of industries will likely be front-running the development of blockchain applications.
Why is Asia an attractive market for blockchain companies?
The talent pool is huge. There are excellent, extremely well-educated people across the leading nations, from India to China to Hong Kong and Singapore. In the financial services industry you have massive talent pools particularly in the ASEAN region. Singapore has one of the most progressive regulators when it comes to embracing blockchain as a business development opportunity. They have created a sandbox environment and have provided funds and expertise to act as a catalyst to bring blockchain technology and knowledge sharing into the region. That’s because they believe it will strengthen the competitive position of Singapore as a financial centre.
What do you think is the best way for corporates and banks to stay relevant in the evolving financial systems?
The essential thing is to make innovation a part of the company DNA. Innovation has to be orchestrated. It has to be embraced throughout the organisation, and it has to be a continuous process. Innovation is not a one-time event.
How far are we from T+0 and do we want to get there?
I think because you have multiple parties involved, even if the technology is there, it will still require changes to business processes, standards and regulation. It is hard to hazard a guess how long it will take, but it will take a while. From my point of view however, we have to get there. The real-time enterprise is the ultimate end game.
When do you think blockchain will become ‘scalable’ and be able to handle volume?
Over the next three to five years we are going to see selective implementation and broader volumes. I think we will reach scale over that period.
The biggest issue right now [is that] the regulatory environment around blockchain is simply not clear.
What should be the role of the central banks and governments in blockchain adoption?
I think regulators have an important role to play in supporting the development of the technology but above all in creating regulatory certainty around it. When regulators embrace a new technology like blockchain, it typically has positive implications, for example, for startups. And that is the biggest issue right now — the regulatory environment around blockchain is simply not clear. I think regulators and central banks also have a role in promoting business development and in being part of the ecosystem that supports the learnings necessary to drive adoption. Some are doing this and some are not. The regulators in Singapore and the UK for example have decided to approach it in a collaborative way. They are keen to go through the learning curve, which is good because their learnings will not only help support the technology, it will also translate into policies, which will ultimately reduce uncertainty.
What do you think of the NASDAQ’s blockchain initiative with Chain? Is it something that you foresee happening in Asia?
I think blockchain will above all disrupt intermediaries like stock exchanges and custodians. From that perspective the early activities of NASDAQ and the Australian stock exchange make absolute sense. They want to be involved in the early stages to understand the benefits of the new technology as well as what kind of role they may play in a distributed ledger environment.
This interview is part of Nest’s Unpacking Blockchain series.
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Oliver T. Bussmann (@obussmann) has gained a worldwide reputation as a technology thought leader and driver of large-scale transformation at global organizations in the financial services and hi-tech industries. Previously as Group Chief Information Officer (CIO) of UBS, Oliver successfully led a major IT transformation effort, and established UBS as a pioneer in the development of blockchain for use in financial services. Now as the founder of Bussmann Advisory, he helps C-suite executives and decision makers stay ahead of the digital disruption curve.
