Blockchain technology is expected to change the way financial organizations conduct business with banks implementing distributed ledger technology (DLT) projects by 2017, according to the World Economic Forum .
After 12 months of research which saw the WEF engage over 200 industry leaders and subject matter experts through interviews and multi-stakeholder workshops, the organization compiled a 130-page report on the impact distributed ledger technology (DLT), also known as blockchain, will have on the financial infrastructure’s future.
WEF’s ‘The Future of Financial Infrastructure’ report found that ‘applications of DLT will differ by use case, each leveraging the technology in different ways for a diverse range of benefits,’ but that ‘DLT has great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure and processes.’
However, while the WEF report predicts that 80 percent of banks will initiate blockchain projects by next year, it is ‘not a panacea.’ Instead, it should be viewed as one of many technologies that will form the foundation of the next generation of financial services infrastructure.
The fact that the report states this could be because there are still significant hurdles stifling blockchain’s growth.
These are: an uncertain and unharmonized regulatory environment, nascent collective standardization efforts, and an absence of formal legal frameworks.
Of course, with over 90 central banks engaged in DLT discussions worldwide and more than 24 countries currently investing in blockchain, it doesn’t seem as though it will take long for the aforementioned hurdles to diminish.
According to the WEF, over the last three years, more than $1.4 billion has been invested into DLT while 90 corporations have joined blockchain consortia.
Understandably, the banking world is jumping on the blockchain bandwagon as they realize the potentials it can present. For example, the use of DLT can speed up the laborious process of transferring money, thereby fully integrating the technology into the structure of the financial services.
DLT presents a wealth of opportunity and no more so than within the financial infrastructure, but it is these six key value drivers for blockchain, which the WEF identified, that are getting people excited about its future: operational simplification, regulatory efficiency improvement, counterparty risk reduction, clearing and settlement time reduction, liquidity and capital improvement, and fraud minimization.
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