Blockchain experiments are everywhere in finance these days. Actual blockchain applications that are big enough to have any lasting impact on banking, not so much.
Those offenders who talk alot without doing anything of substance have even been given a name in crypto world. “Too many people are using [blockchain] as a buzzword and are not focused on solving a real problem,” Ripple CEO Brad Garlinghouse wrote recently. “We like to call them Blockchain tourists!”
The payments tech provider has a point. One loses count of all the proofs of concept showing successful tests of corporate-friendly decentralized networks, albeit in rigged lab conditions. No fewer than 15 big European banks, from Barclays Bank Plc to Banco Santander SA, have mentioned blockchain in regulatory filings since the end of March, according to Bloomberg data. Most are simulations in pretty niche areas like shipping, trade finance and commodities.
Still, that’s not to say we should see blockchain tourists as the crypto equivalent of those befuddled souls queuing outside Madame Tussauds. While it may infuriate the true pioneers, there’s plenty to be gained from even the most tenuous links to the tech. Look at Bioptix Inc., a tiny biotech diagnostic specialist whose shares surged after it renamed itself to the not entirely subtle Riot Blockchain—a move redolent of the stuff going on during 1999’s dotcom mania.
At the more sedate end of the market, a bank that presents itself as a blockchain believer may stand a better chance of hiring those MIT and Imperial College types who’d usually be sniffy about financial services. Plus it’s no bad thing to test this stuff, if you can keep an eye on what rival tourists are up to.
Proofs of concept—or “mock-chains” as it were—make sense for a highly experimental technology that hasn’t yet shown itself useful for high-volume, time-sensitive or complex applications, according to Blomberg Intelligence.
The finance industry tends to stick with what it’s already spent money on too: Incumbent cross-border payments standard SWIFT, for all its clunkiness and flaws, has about 11,000 clients using and updating its technology, while Ripple’s flashier blockchain alternative has 100.
Blockchain tourists might even have a last-mover advantage. Bankers will tell you that about 95 percent of blockchain experiments are bound to fail, and they want to spread the risk. Banks are often members of multiple blockchain associations: BBVA for instance is part of R3, Ethereum Enterprise Alliance, Hyperledger and Lyra. That’s one way to avoid being tied to the blockchain equivalent of Betamax
The tourist-baiters argue that dabbling financiers are delaying the inevitable, and will end up paying big sums to catch more committed rivals. Indeed, Accenture reckons eight investment banks powered by a system of distributed ledgers could save $8 billion out of a cost base of $30 billion—so long as regulators approve.
But if blockchain is just a fancy way of tidying up the back office, banks have plenty of easier alternatives. Talk of revolutionary ledger technology is almost laughable when you look at Deutsche Bank AG struggling with thousands of incompatible applications, or Royal Bank of Scotland failing to disentangle Williams & Glyn from its systems in time to sell it. U.K. challengers such as OakNorth or ClearBank might offer more useful lessons to the big guns in using servers hosted by Amazon.com Inc. or Microsoft Corp.
In trade finance, applications such as Bolero already allow buyers, sellers and banks to electronically exchange letters of credit and other documents. The obstacles aren’t even technological a lot of the time. Regulation, rule of law and client preference do more than anything to keep paper alive.
So while bankers can’t be blamed for their little weekend jaunts to blockchain-land, they’re probably right to hold off on buying that permanent place in the sun just yet.
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