Is Blockchain the saviour of global financial markets?
By Steve Grob, director of group strategy, Fidessa
At a recent event I was asked to pick three technologies that could really upset the capital markets apple cart. Blockchain, the distributed ledger technology that underpins Bitcoin, was one of those that I selected.
The best way to think about Blockchain is that it solves the trust problem when two parties wish to transact with each other. It achieves this by distributing the transaction record across multiple servers that are open to all. This was essential for Bitcoin because with no one ‘owning’ the cryptocurrency, some mechanism was required to provide a record of who was spending what.
The really big idea, however, is that Blockchain has the
potential to remove the need for all the third parties – central securities depositories, custodians,
clearing houses, etc – currently involved in the financial markets food chain.
So could it work?
Technically, yes.
Up to now Blockchain technology has appeared tamper-proof against even the most ardent hackers and, if it were to become ubiquitous and used by everyone, then its potential truly is vast.
There are some big snags, however. The first is regulation as it is unlikely that different regulators will view it the same way or opine on it at the same time. We might even get into a regulatory tug of war as regulators in different jurisdictions try to use it as a way of expanding their own territorial horizons -- the European Securities and Markets Authority has already published a call for evidence paper on virtual currencies and distributed ledgers.
The second challenge is that if Blockchain use is only partial then we will still need all those pesky counterparties and intermediaries so it’s a bit of an all or nothing play. Finally, there are already a number of technology firms competing with their interpretation of Blockchain technology so, again, we may find that Blockchain’s early allure crumbles to nothing through competing standards.
Nevertheless, there is plenty of talk about it at the minute
and several firms are making significant bets on its outcome. I suspect,
however, that in developed, westernised countries there is simply too much
vested interest against anything so radical. On the other hand, Blockchain may give developing countries and their markets a chance to leapfrog the global
competition.
Found this useful?
Take a complimentary trial of the FOW Marketing Intelligence Platform – the comprehensive source of news and analysis across the buy- and sell- side.
Gain access to:
- A single source of in-depth news, insight and analysis across Asset Management, Securities Finance, Custody, Fund Services and Derivatives
- Our interactive database, optimized to enable you to summarise data and build graphs outlining market activity
- Exclusive whitepapers, supplements and industry analysis curated and published by Futures & Options World
- Breaking news, daily and weekly alerts on the markets most relevant to you