Xavier Laurent, Blockchain Community Leader for Credit Agricole CIB
Block-chain technology has been promising disruption and revolution for the last three years. Despite the aura and resilience of Bitcoin and Ethereum networks, the crypto-currency crash of December 2017 and the lack of commercial solution available on the market have plunged the technology in the era of disillusion. However, it would be a mistake to fall into bitter skepticism as the efforts to mature the technology and the first launched projects are about to pay off!
Blockchain is a source of efficiency and resiliency. The technology is removing the dependency on a central point of failure to keep track, enforce, and arbitrate an agreement among parties. It can replace trusted third parties to ensure that participants have the same understanding for the execution of a transaction.
Payment is the perfect example. If Bitcoin is difficult to integrate in a regulated world, other solutions like Ripple bring the efficiency of the Distributed Ledger Technology (DLT), and the capacity to integrate with core-banking information systems to apply necessary compliance controls.
Clearing & settlement is another example. An important milestone was reached in France when ID2S obtained regulatory approval to be the first central securities depository powered by a DLT. This project initiated by the telecommunication operator Orange and operated by the British FinTech SETL aims at digitizing the French commercial paper market. By doing so, it paves the way for a new capital market infrastructure with the quasi instantaneous settlement, reducing costs and operational risks.
However, the weight of regulations and the complexity of market infrastructure are making difficult expanding this type of initiatives, and scaling up proofs of concept into mature products.
Wider adoption will come if central banks and regulators pave the way through more clarity and legal frameworks, and not all central banks are equal in jumping onto the train. The World Economic Forum has published an article recently with ten ways Central Banks are researchingblockchain technology and surprisingly, the U.S. Federal Reserve is not listed anywhere.
Fabien Legland, Director of Project Management & Innovation for Credit Agricole CIB Americas
However, the Hong Kong Monetary Authority (HKMA) and Monetary Authority of Singapore (MAS) are testing Know Your Customer (KYC) / Anti-Money Laundry (AML) and Interbank Securities Settlement use-cases.
The financial services industry is organizing itself around consortium such as R3 or ConsenSys, going beyond banks to include corporate stakeholders, with the objective to speed the processes of creating and scaling innovation.
The Marco Polo network was formed in 2017 with the world’s leading financial institutions, their corporate clients, the technology firm TradeIX, the enterprise software firm R3, and constituents of the wider trade ecosystem such as Enterprise Resource Planning (ERP) providers and logistics companies. It is one of the fastest growing trade and working capital finance networks.
Don’t stay on the sideline; participate in the transformation
The KOMGO initiative was formed in 2018 by fifteen of the world’s largest banking and commodity companies to build a global blockchain-based trade financing network.
Of course, non-financial use cases are emerging.
Supply chain monitoring is one example.Corporations are investigating the benefit of blockchain to secure and provide visibility on their supply chain beyond the frontier of their ERP, as the sanitary scandals of the past years have shown that traceability is a major stake for some industries such as healthcare and food & beverage.
Decentralized cloud storage is another example. If you consider that relying on large centralized silos of data, and the risk of breaches and their impacts. Remember Equifax and its estimated cost of $400M. Decentralized storage is a potential solution that blockchain companies are implementing, with a system of being able to store your file without having to rely on traditional cloud or on-premise storage solutions.
Considering the pace of innovation and absorptive capacity of new technology, we are still at the early stage of blockchain and distributed ledger technology adoption. Industries are organizing themselves. Regulators are seeing the benefits and paving the way for wider adoption. We believe that the next ten years will see exponential adoption of this technology in any industry that needs increased efficiency, better resiliency, and more transparency. Don’t stay on the sideline; participate in the transformation!