Reason 3: There are opportunities across industries
Blockchain is well known as the technology which supports bitcoin, but it is much more widely applicable. Fundamentally, it is a database which could be used in instances where different organisations or individuals interact with each other.
Arnaud cited examples, beyond bitcoin, where blockchain has been adopted:
- Retail: Everledger uses the technology to trace diamonds from the mine to the retail store, ensuring they are ethically sourced and high quality.
- Industrial: Maersk uses blockchain to manage the complex, international supply chain for shipping containers, monitoring where items are and reducing paperwork for everyone involved along the journey.
- Food: Businesses, including Walmart and Unilever, use blockchain to trace the provenance of food. As well as helping with data management, when linked with the Internet of Things, blockchain can record whether items have been stored at the ideal temperature and in an upright position.
Reason 4: It could create a better data picture
Using his company as an example, Angus Scott from Euroclear - a Central Securities Depository (or CSD) - explained how blockchain could have uses across the financial service industry:
“We operate a big database which contains information about shareholdings, securities issues and transactions. 3,500 people work for Eurclear and one way to look at their role is to make sure that this constantly changing information is accurate at all times.
We have a view on that data, but so do other companies. The registrars have a view on that data from a company point of view…banks have a view on it too. And we’re all holding multiple versions of it.
“The promise of blockchain is that the system could be redesigned to be more collaborative and create better data. Imagine a single data source where all the parties work together to maintain and verify the bits they are responsible for. Each one, whether investors, registrars, regulators or whomever, sees only what is relevant to them, but they can always tell that any records they are allowed to see are correct. This is the true power of the technology, although it will require industry adoption to succeed”.
Reason 5: It is possible
So what should companies be doing now? Working for a start-up, Thorsten suggests starting small, being focused and thinking through the issue in a structured and manageable way. For a financial services firm dealing in various asset classes, for instance:
- Identify a mini-market. Who are your customers? Which four or five institutional investors will you focus on? What assets are they interested in trading, holding and processing?
- Plan the process to add one line item to a decentralised environment. What is the operational flow that will allow investors to hold, buy or sell? What is the governance framework that regulates the technology? What is the right technology architecture? And what is the right legal framework?
- Grow from there. What other assets could you bring in? How can you broaden your investor base in number and in geography? What other automated services can you put on top - such as coupon payments or proxy voting solutions?
Issues to overcome
Of course, none of this is simple. As today, data will still only be as good as what has been inputted. There may be economies of scale eventually but the set-up will be expensive. It will be time-consuming to reorganise systems and make adoption possible. Organisations around the world operate on different rhythms and investment cycles, complicating synchronisation further.
And those are just the practicalities. Other issues are more complex. Who owns the process and the data? Who is accountable? What are the mechanisms for when it doesn’t work out? How is it governed and regulated and who by? And what of data privacy and protection? There is no one answer, but Thorsten suggests:
- Accountability: Organisations can use carefully managed “permissioned blockchains” rather than the more commonly known “public blockchains”, which anyone can access. Permissioned blockchains allow databases to be broken down into individual data records so organisations can be given responsibility for an area.
- Privacy: From the start the architecture needs to be designed enabling the right parties to be able to see the right information. Selective transparency is going to be key and we must account for incoming regulations such as GDPR and the right to the forgotten.
- Scalability: Public blockchains continuously grow and do not have concepts for archiving. Suitable architectures need to account for scaling over time and must be built so industry volumes can be processed.
Introducing blockchain to an organisation requires careful thinking and thorough testing. Angus Scott believes it may not be the disruptive technology many expect:
“There’s not suddenly going to be a point at which the world shifts to blockchain. As it evolves, it will become pervasive and you probably won’t even notice it because it’s just a better way of sharing data in certain environments.”
Equiniti invests in blockchain
Equiniti’s approach to harnessing the opportunities offered by Blockchain technology has been to set up a dedicated Distributed Ledger Technology (DLT) R&D team at their Fintech Centre of Excellence in Cardiff. The team has developed an in-house sandbox environment to test the technologies capabilities from where we have also designed a number of Blockchain Proof of Concepts in areas including Post Trade Settlement and Workflow.
We have also been collaborating with other Market Participants such as Infrastructure Providers, Custodians and Asset Managers as well as cryptographic experts from Academia on a variety of other projects and services that could be extended out to corporate clients and utilities to support the industry.