Will Blockchain change the (Financial) world as we know it?

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Will Blockchain change the (Financial) world as we know it? Blockchain is the underlying technology platform which was created to support the Bitcoin Cryptocurrency (https://www.capgemini.com/blog/capping-it-off/2015/01/crypto-currency-when-will-its-time-come ). Whether Bitcoin itself will reach critical mass is an open debate, however, the idea Blockchain will create a serious disruption to current business models in the financial services sector […]

Will Blockchain change the (Financial) world as we know it?

Blockchain is the underlying technology platform which was created to support the Bitcoin Cryptocurrency (https://www.capgemini.com/blog/capping-it-off/2015/01/crypto-currency-when-will-its-time-come ). Whether Bitcoin itself will reach critical mass is an open debate, however, the idea Blockchain will create a serious disruption to current business models in the financial services sector and beyond is rapidly growing in acceptance, as organisations from small starts ups through major corporations to Governments invest the technology.

What is Blockchain and why is it different

Bitcoin and the Blockchain concept was released in a White Paper November 2008, under the name Satoshi Nakamoto titled: Bitcoin: A Peer-to-Peer Electronic Cash System . Since then Bitcoin has grown from nothing to generate a growing number of transactions at the same order of magnitude as Western Union and Paypal, using the Blockchain technology and operating model. The Blockchain model has a number of characteristics which make it different to current payment and transaction processing models:

  • It is a distributed processing model rather than reliant on centralised hubs. It is an extreme version of distribution as processing can occur on any node based on a first come first served basis, there being an internal competition between the Miners to carry out the processing. The processing thus relies both on the technology model but also on the community model for carrying out the processing

  • It is an open rather than a closed model, where anyone with the energy and the right tools can participate and be rewarded. As such it is not amenable to centralised control or profit taking

  • The security is based on cryptography as well as open visibility of transactions, rather than boundary defence of processing platforms and behind closed doors audit.

So if we separate the technology from the community based operating model, then we can see a new paradigm and one which is completely aligned to the structures of the Internet and the concepts that drive digital transformation. So for large corporations that are struggling with the join between legacy, centralised platforms and the distributed digital world, Blaockchain gives a model for a possible technology future.

What are its use cases

If we look at Blockchain as a mechanism for managing transactions which involve a firm contract then it can have a very wide range of use cases (http://letstalkpayments.com/public-and-private-blockchain-concepts-and-examples/) ranging from asset and rights management, through Identify management to contract exchanges for insurance and other forms.

The most active area is in payment processing where we have seen a number of companies with different levels of activity and re-use of the core concepts, including:

  • Blockstream www.blockstream.com which extends the basis Blockchain model with additional ‘side chains’ which extend the use of Bitcoin

  • Ripple Labs, www.ripplelabs.com which has used the basic concepts of Blockchain to create its own variant and protocol which can then be used to create financial exchange solutions for organisations, with a focus on currency exchange.

  • There a wide range of other organisations investing in payment or financial trading applications of blockchain such as Tembusu (TRUST), Guardtime (KSI) or PeerNova.

What is Ethereum

www.Ethereum.org takes the Blockchain concept a step further by creating an open model for a secure, decentralised, generalised transaction ledger, effectively a new model for transaction processing.
Attempts to create distributed transaction processing started in the 1990s but came to an end because the challenge of a 2 phase commit could not be overcome for distributed databases.  The result has been a reliance on centralised processing, which has been possible due to the growth in processing power as Moore’s law solved the scaling problem.

Blockchain breaks the paradigm by allowing distributed processing of (financial) transactions and Ethereum takes this concept on into a generalised model for processing.

We are thus moving from an interesting financial payment processing opportunity to a concept which creates a new paradigm for transaction processing using distributed ledgers, breaking the IT model that is in use by all companies worldwide.

So who is investing

The major Banks have woken up to the impending impact of Bitcoin and Blockchain (https://www.coingecko.com/buzz/16-banks-experimenting-with-blockchain-technology) with Barclays and UBS at the forefront of experimentation. http://www.ibtimes.co.uk/ubs-barclays-bnp-paribas-are-front-runners-bitcoin-2-0-technology-ethereum-1514138

At the same time Nasdaq is also investing in the technology as it is experimenting with ‘coloured coins’ as a way to use the public ledger to record private equity transactions

Beyond banking we are starting to see assessments of how Blockchain could impact insurance and other industries http://www.longfinance.net/images/Chain_Of_A_Lifetime_December2014.pdf

So from a standing start of a concept in 2008 we have seem rapid growth to a point where we could be approaching a step change in the use of the technology with a consequent impact on the way transactions are processed.

What are we doing in Capgemini

In Capgemini we have grown a large community on interest, building on experiments and work in the area across our worldwide network, led by Bart Cant. A great example is that two of our team (Patel Harsh and Shashank Singh) won 2nd Prize at Hackathon for Blockchain technologies organized at Bombay Stock Exchange over 1st and 2nd August (Overnight), by NASSCOM 10000, Zone startups, BlockchainU and Others.

Our payments centre of excellence, led by Christophe Vergne is building relationships with a wide range of organizations as we explore the impact of the technology on our clients and their operating models.

Our Sogeti Labs (www.labs.sogeti.com )is actively researching the area and will shortly be presenting their initial findings, led by Menno Van Doorn, co-author from VINT and Sogetilabs.

Will Blockchain change the world?

We can see that blockchain changes the IT paradigm for processing and has the potential to create a very different model for transaction processing and management of contracts. Bitcoin, which it enables is now a significant global player in payment processing, from a standing start in 7 years. We are now at the first steps of adoption of the blockchain technology into wider use, with interest and investment rapidly accelerating, so where could we be in another 7 years time?

Given this it is difficult to ignore, so one would do best to consider a core tenant of the digital world and start to ‘test and learn’.

If you would like to draw on the expertise we are rapidly evolving from our growing community then contact myself or Bart Cant (bart.cant@capgemini.com) or Christophe Vergne (christophe.vergne@capgemini.com )


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