Blockchain technology seems to be a causing quite a stir across multiple industries, as the po-tential applications for the innovative technology are being more throughly investigated by every-one from government agencies to international auditor Deloitte. Despite early indications showing skepticism from the banks towards Bitcoin and blockchain-enabled currency, recent news has fo-cussed on a flurry of interest from financial giants into the capabilities of blockchain technology. France’s biggest bank, BNP Paribas is testing the potential of blockchain technology for post trade processes and Société Générale posted a job earlier this year for an “IT developer on bitcoin, blockchains and cryptocurrencies”. French banking institutions aren’t alone either, with Barclays in the UK, Santander in Spain and CitiGroup all investigating the innovative technology in some ca-pacity. Despite this, many fear that banks do not want to use the technology as originally intended, with a a focus on decentralisation and anonymity. It is somewhat saddening to early adopters, that banks will seek to take control over their own blockchains, and decide who can use their versions of the distributed ledger. This approach eliminates the benefits of decentralisation and an open, low-fee payment network, but ultimately makes the innovative technology more straightforward to integrate with existing currency paradigms. Blockchain has unparalleled potential to revolutionise the systems used by banks, by improving efficiency and limiting costs, however it is unclear if the-se benefits will be passed to consumers. The potential benefits of blockchain technology to bank-ing institutions are almost innumerable, for example large business-to-business transfers could be completed with significantly lower costs and even with minimal decentralisation, system-based transaction errors are likely to be diminished. Almost all representatives from banks have cited blockchain as the source of their interest, deeming Bitcoin itself to be nothing more than a distraction from the potential applications of the underlying technological protocol. This is almost an insult to Bitcoin; it’s capabilities as a currency are almost certainly greater than long-standing fiat alternatives, however due to decentralised na-ture of Bitcoin, it instills a sense of fear in traditional financial authorities such as banks, who would stand to lose an enormous amount of power if Bitcoin became a dominant currency. The huge amount of investment into start-ups operating in the Bitcoin space is a clear sign that the cryptocur-rency is likely to continue to grow. Consumers are getting more experienced with alternative pay-ments and e-commerce systems, which will likely lead to further inroads into the banks’ domi-nance. It is worth remembering that many bank executives expressed warnings and reservations about emerging online payments and e-commerce in the mid 90’s, before choosing to adopt this technology only a few years later. New technologies will always be treated with a degree of appre-hension, particularly by those who stand to lose out if they are successful, but banks would do well to listen to consumers, for whom flexibility is king. Bitcoin already provides huge benefits to con-sumers and many of the issues it faces could be alleviated if the banks adopted a more favourable position on the cryptocurrency. With a resolution to the block size debate surely just around the corner, the main issue left facing Bitcoin will likely be the nature of further regulation. Despite all the focus on blockchain technology, there is a lot more that Bitcoin itself can provide us, especially if Bitcoin-based innovation is given the right encouragement by authorities, through transparent and sensible, industry guided regulation. Financial technology is set to massively revolutionise global forex investments and business in the next few years and reluctance to keep up could be catastrophic for banks, whose dominance hasn’t been significantly challenged over the last century! The innovation in the sector has been difficult to keep up with and there has been significant venture capitalist interest in the Bitcoin and blockchain industry. Nobody can claim to know what the financial sector will look like in five years time, but cryptocurrencies and blockchain technology are likely to play a notable role. The banking giants will do well to keep on top of innovation and due to their deep pockets are unlikely to be replaced by Bitcoin banks any time soon, but consumers should continue to explore alternatives to ensure they’re utilising the best technology possible.

• published: 17 Dec 2016
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