The Push & Pull For Blockchain
Blockchain faces a tug of war between industry incumbents and the collective power of the markets.
The world’s capital markets are moving towards greater adoption of blockchain technology. There are obvious benefits facilitated by blockchain-based ecosystems including enhanced transparency, speed of transactions and security. At this critical stage of growth, it will be important for the industry to navigate an intelligent path between industry incumbents and community calls for transparency within the financial sector.
As the industry begins to mature it is valuable to identify where the investments are coming from and what the plans for implementation are.
The integration of blockchain technology into financial services markets has the potential to improve every aspect of the industry. Many traditional blockchain enthusiasts believe that it is the strength of transparency which represents the greatest opportunities for society. As the industry grows it must address how it will reduce financial corruption and manipulation.
Industry giant JP Morgan is implementing a blockchain protocol called Quorum which is based around the existing Ethereum protocol but constitutes significant developments that JP Morgan is touting will protect sensitive data. The traditional ethos of blockchain was centred around being transparent but this perspective does not mesh with the current privacy obligations of banks and financial institutions. The Quorum protocol claims it is bringing enhancements to permissioned and enterprise applications to deliver greater flexibility on how the privacy of users is safeguarded.
The value of the Quorum protocol is being augmented through a partnership with Microsoft’s Auzure cloud platform. The platform and protocol together bring a strong value proposition to the financial market and Microsoft is marketing Quorum as a core element of their new Azure Blockchain Services. The recent announcement by Brazil’s central bank shows how the two technologies are working together to reduce the cost of transactions while streamlining traditional paper-based processes.
The benefits delivered by Quorum are not unique and the protocol faces competition from others such as those developed by Hyperledger Fabric and R3 Corda. It is not solely banking and finance which stand to benefit from these developments. Media applications, travel systems, supply chains and educational institutions all have aspects which can be streamlined through the cost-cutting opportunities of blockchain technology.
Adoption of the blockchain by industry giants such as JP Morgan and Microsoft raises eyebrows amongst those concerned with consolidation of finance and power. What is evident is that large corporations see the potential in blockchain and wish to capitalize upon it. If that will improve transparency and reduce fraud remains to be seen.
The size of the enterprise market for blockchain solutions is growing rapidly and some observers estimate that it will be worth over $21 billion within the next five years. With such enormous potential, the industry is attracting significant investment from the biggest players in the professional services sector. The “Big Four” accountancy firms of Deloitte, Ernst & Young, KPMG and Pricewaterhouse Coopers are all looking to capitalize upon the opportunities that the technology delivers.
The role that the Big Four see themselves playing is the auditing of firms to provide investors with information and insights into the industry. In many ways, the involvement of these financial services incumbents goes against the grain of the initial transparency orientated perspective of the blockchain community. The economy is under no illusions that these largest of the accounting firms have in the past been involved in many ethical, accounting, auditing and fraud scandals. How do they intend to implement the accountability the blockchain offers to reduce fraud which they have previously benefited from?
The blockchain promised to place greater control back in the hands of the market and sideline the influence of large financial institutions such as banks and accountancy firms. An interesting period is about to unfold within the wider economy representing a push between the financial incumbents and the pull from the desires of society.
The truth is that a middle ground will probably be found as an increased awareness of the opportunities presented by the blockchain begin to drive demand within the marketplace. A 2011 Swiss study identified that through global consolidation 737 multinational companies control 80% of the world’s economy. The fact that most of the world’s population is oblivious of this fact is indicative of the lack of transparency that the blockchain has the opportunity to impact.
There potentially exists a point of balance between the existing systems and the need for reducing corruption. As blockchain technology matures it is hopefully an ethical perspective which perseveres rather than further consolidation of global power.
Knowledge is key in this process and it is incumbent on society to educate itself on the opportunities and threats inherent in the new economy. The blockchain has the opportunity to improve lives but only if it is utilized intelligently.
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