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Blockchain: The future of the finance industry?

Blockchain: The future of the finance industry?

Portrait of Grégoire Tondreau
Partner
Brussels Office, Western Europe
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  • With blockchain peer-to-Peer (P2P) technology we are entering a new digital era that has the potential to transform finance as we know it. The future of finance could be without banks but with transactions approved automatically in seconds or minutes, significantly cutting costs and boosting efficiency.

Decentralized cryptocurrencies - chances and downsides

Of all the promising new technologies that have emerged in recent years in the financial service sector, the best candidate for being a real gamer changer is the technology that powers decentralized cryptocurrencies, known as “blockchain”. The first and most famous of these currencies is Bitcoin, which was created in 2009.

All Bitcoin transactions are carried out peer-to-peer and thus outside the control of any central authority, whether commercial or governmental. This lack of oversight has made Bitcoin a popular means for buying illegal drugs and weapons on the dark web, especially on sites such as the notorious and now defunct Silk Road.

The original advocates for Bitcoin were libertarians and cyber-anarchists, people who liked it precisely because it removed the need for banks or other middlemen. Few imagined in the early days that blockchain, the technology underpinning Bitcoin, could have applications in conventional financial services.

The big players are taking up the fight

"Peer-to-peer currencies could completely transform the financial industry. But banks are yet to decide if this technology is friend or foe."
Portrait of Grégoire Tondreau
Partner
Brussels Office, Western Europe

2015 saw huge interest in blockchain technology. Over 1 billion USD was invested in Fintech startups that could potentially disrupt the big financial players with services such as bank transfers and peer-to-peer loans.

Blockchain technology also attracted much attention from the big players themselves, and it is among the major points of discussion in Roland Berger’s digitization initiatives like Terra Numerata.

A Roland Berger survey of digitization prospects in Switzerland found that crypto-technologies and blockchain had the third greatest potential in digitization in coming years, after wealth management and security/digital identity services.

Yet those interviewed expressed a degree of uncertainty in the direction that the technology would take. “We really have no idea what this whole thing is going to turn into,” the director of the MIT Media Lab told Roland Berger.

and even more was invested globally in 2015 in Fintech startups that might disrupt the big financial players.

Bank accounts are not necessary any more

On the one hand, it has the potential to increase profits by introducing greater automation into bank transfers, thereby making them more efficient – a Santander report suggests savings of up to USD 20 billion a year for banks – while on the other hand, “the ability to process transactions directly between parties… poses a risk to traditional banking.”

Transaction costs are minimal, typically free for the recipient and only a few cents for the sender. In theory you only need computer software: a bank account is not necessary.

The potential for blockchain technology goes far beyond currency exchanges. It could be repurposed for any system where maintaining public records in a decentralized manner is useful. Plans are under development to implement it on stock exchanges, to create automatic contracts that would be useful to the insurance industry, and it has been proposed for maintaining land registries.

"The future of finance could be without banks but with transactions approved automatically in seconds or minutes."
Portrait of Grégoire Tondreau
Grégoire Tondreau
Partner
Brussels Office, Western Europe

A threat for all centralized Internet systems

Some predict that blockchain has the potential to disrupt all centralized Internet systems; it could be used to secure, authenticate and send any kind of data in the Internet of things. Blockchain technology may also create the backbone for machine learning and true artificial intelligence.

Bitcoin’s early volatility as a currency, and its association in the popular mind with illegal and fringe Internet movements, distracted from the basic usefulness of cryptocurrencies based on blockchain. Until today, it is impossible to say what direction the technology will take, but it is clear that we could be entering a new digital era that has the potential to transform finance as we know it.

  • Photo Credits: Olena Timashova, / iStockphoto; Skegbydave / iStockphoto

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Plan D – Digital all the way

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Banks and insurers have some of the greatest digitization potential of all, given that they have been collecting, processing and connecting data on clients and transactions since the year dot.

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