Blockchain to revolutionise global finance

The internet is so yesterday, delegates at the World Economic Forum in Tianjin heard, as panellists played up the potential of the online data ledger technology.

Blockchain, the emerging technology that underpins a powerful new online data ledger system, will radically transform the world of banking and finance; things will never be the same again.

That was among the strongest messages at this year's World Economic Forum, as the rich, powerful, and smart converged on the northeastern Chinese city of Tianjin in late June.

“Blockchain will revolutionise banking and financial services as we know it,” Pierre Gramegna, finance minister of Luxembourg, said at the three-day forum, dubbed the “Summer Davos”.

“It is possible that blockchain will replace the word ‘internet’. By the time our children have children, the only time they will see the word ‘internet’ is in science and history books,” he said.  

Blockchain works like a huge, decentralised ledger database that is distributed to different computers and records every transaction with advanced cryptographic techniques to create transparent, tamper-proof and indelible records of exchange. It has been drawing increasing interest from investors, regulators and fintech firms in spite of its low public awareness, according to panellists and experts attending the forum.

The assertion that blockchain is the new world wide web was a common one.

According to Axel Lehmann, UBS Group chief operating officer, blockchain could be “the new internet” of the financial world. “Blockchain is a potentially transformative technology that will leave as deep a mark on our world over the next 20 years as the internet has over the last 20 and might disrupt many of our existing business models,” he said.

Panellists said that though blockchain is at an early stage in its development, it has the potential to make a big impact in financial services and have far wider applications.

Trials, wider applications

UBS is one of several global banks conducting real-world trials using blockchain technology for instantaneous international payments because the technology enables faster processing times and cuts costs and operational risk.

Last March, the Swiss investment bank also opened a London-based research lab to explore the application of blockchain technology in financial services.

One of its first experiments in the lab was to develop a “smart bond” which requires no pre- and post-trade intermediaries. That's because the blockchain software can automatically handle the flow of information and capital between issuer and buyer, according to the bank’s statement.

While blockchain was viewed by attendees in Tianjin as a major technical innovation for the future of financial services, panellists also agreed that blockchain-based technology could disrupt other industries.

“We now have non-sovereign money and it has a lot of advantages and it is just going to grow,” said Jeremy Allaire, founder and chief executive of American digital currency firm Circle. “The nature of accounting, insurance, corporate governance, voting, all of these systems can be moved to blockchain technologies in the future. We are just at the start.”

Panel discussion: Unblocking Blockchain (Photo credit: WEF)

According to Leanne Kemp, founder and chief executive of British blockchain start-up Everledger, such technologies also provide innovative ways to counter fraud and illegal trade, such as in blood diamonds. Using blockchain technology through her start-up firm she said she had been working to curb diamond fraud by tracing synthetic diamonds in the supply chain.

“I would like to see blockchain being applied to [solve] big problems, [including] the proliferation of counterfeit goods and financial inclusion,” she said. “We should be thinking about where we are applying this technology.”

Thinking ahead

Tech-savvy people like Kemp are embracing blockchain technology, and some regulators are beginning to do so, mildly aware of the potential tax-take repercussions as transactions become more frequent and much faster.

Gramegna, the Luxembourg finance minister, urged governments to think forward. 

“You need a regulator that is keen. The regulator is there to apply the rules, fully and in an equal manner; but, at the same time, the regulator can be innovative,” he said.

Luxembourg was one of the first countries to legalise virtual currencies.

According to Eugene Qian, UBS’s China head, China has also joined the global blockchain race with growing interest from the country’s regulators and a swift response from Chinese fintech firms, notably privacy protection firm PDX and financial business streamlining service provider Xindi.

ChinaLedger, an alliance of 11 regional commodity, equity and financial asset exchanges, was set up in April and led by Wanxiang Blockchain Labs, a Shanghai-based non-profit research institution, part of Wanxiang Group, one of China’s largest auto parts manufacturers.

Two months later, another 31 Chinese financial firms including Ping An Bank formed a second alliance of this type. Both were set up to research and promote the applications of blockchain-based technology.

“It will take some time to build up awareness and liquidity. But when we invested in the peer-to-peer lending model in China, it was quiet and not crowded at all. People said we were crazy. Bitcoin and blockchain leaders will have to be crazy for some time still,” said Tang Ning, founder and chief executive of Chinese fintech firm CreditEase.  

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