Five Things Blockchain Must Do Right (Download Full Text)

Baozou Comment : This report looks at blockchain technology from the perspective of the financial industry. Compared with the current optimism about blockchain technology, this report seems to be more cautious. The report admits that the financial industry has indeed reached the point where it has to be reformed, but it remains to be seen how blockchain technology is used and whether it can achieve the desired results. Especially in the application link, if no substantial results are seen for a long time, it is believed that the development speed of blockchain technology will be affected in the future.

Translation: Prince Gong

Financial technology solutions company D+H has provided a white paper on blockchain, "Five Things Blockchain Must Do Right to Fully Unleash Its Disruptive Potential", which identifies a series of milestones that blockchain technology must achieve before it is recognized by global Internet financial giants. At large international conferences, corporate executives and those actively involved in finance and banking have also portrayed their opinions on blockchain.

Reply to the WeChat public account “区块链笔Blockchain” and the keyword “DH report” to view and download the full text of this report.

Many executives believe that the technology has great potential if used correctly. However, some of the fundamental characteristics of blockchain technology and its close association with the unpopular disruptive digital currency Bitcoin can cause some old-school financial people to feel a little off-putting. This D+H white paper provides an objective assessment of blockchain and discusses what it will take to achieve widespread adoption in the notoriously cautious, regulated, conservative and risk-averse financial industry.

A new era of financial services

In the introduction to the report, it is made clear that many financial services professionals, including the authors of this paper, acknowledge that traditional finance as we understand it is at a crossroads. Markets are changing, but more importantly, technology is changing even faster. It seems that initially most people were hesitant, and many banks were reluctant to make large investments in blockchain technology, but the overall atmosphere seems to have changed.

“If 2014-2015 was the era of blockchain experimentation and innovation, then 2016-2017 will be the era of integrating this rapidly developing technology into banks and starting to solve some real business problems.”

But is there something wrong with the market now?

The paper points out that the EU Payment Services Directive, the US Dodd-Frank Act and the Basel III capital and liquidity framework are the major changes in financial services in the last 3-5 years. They have increased competition within the industry and increased pressure on the industry by adding new challenger banks and third-party payment processors. All of this makes banks more responsible for handling the entire business, increasing friction between links and increasing costs.

Of course, we cannot say that the emergence of blockchain technology has caused all this, but the state of the financial industry is indeed being held back by traditional technologies, but these traditional methods are also due to domestic and international government regulation. Even if blockchain technology can theoretically make banks better at transferring funds, it is not clear whether it is really worth it for banks to pay a huge price to switch to a new technology to make their processes really fast enough and efficient enough.

Payment is probably the best application scenario for blockchain

If we talk about the potential and theoretical aspects of blockchain technology from the perspective of smart contracts and markets, it may be endless. However, D+H believes that payment will be the best application of blockchain technology.

“Blockchain’s ability to solve these problems is unmatched – opening up entirely new avenues to create a global payments environment that is less frictionless, faster, more efficient, and more transparent and secure.”

However, D+H lists five obstacles that must be addressed if blockchain is to be used in the financial system:

1. Solve the right problems. Blockchain may not be used in all aspects of banking operations, so leaders will have to think carefully about which problems should be solved in the initial stages.

2. A major application must emerge to convince banks to use blockchain technology to handle highly sensitive data. If there is no solid application for banks to use, the linkage effect released by gradual blockchain integration will be very slow.

3. Once faced with the various burdens of "industry regulation" in the industry, blockchain technology must not lose the value of its disruptive potential.

4. The technology needs to be able to scale to all levels to handle all aspects of an international banking system, and it must be able to do so.

5. The success of blockchain technology in the banking system depends on the technology being able to fully integrate with banks and institutions in terms of time scale and perspective. This includes being able to establish long-term (decades) planning and being able to demonstrate continued reliability for very old traditional financial companies.

The most interesting part of this paper is the title of the paper - "Five Things Blockchain Must Do Right", which seems to allow those centralized institutions to precisely control the "blockchain". It's like a group of bankers are negotiating with the core developers of the blockchain, saying that if they are forced to accept the blockchain one day, they need to list a bunch of ransom demands. But the reality is that what banks really need to face is whether the blockchain can solve their internal problems, that is, whether they can really become fast enough and flexible enough when using the blockchain.

It is almost certain that there will be a group of very brave and eager members of the banking industry who will first try to integrate blockchain technology into their Internet finance strategies. We hope that these new technologies will enable those pioneers to no longer worry about its risks, but to gain actual benefits and prove that those who are still waiting on the sidelines really should not wait too long.