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Blockchain Technology: Is it the next Wheel and Fire?

-by Kiran Kalmadi and Souna Uthappa

Wheels and fire are said to be the most important inventions in the history of mankind. Though we missed the events that led to these inventions, we are a witness to the events unfolding, which many call equally significant - the events that have made the blockchain, the most in-vogue term these days. The banking industry, which is no exception to this, has taken avid interest in this space. The who's who of banking is exploring and embracing blockchain - the technology behind bitcoin. Although bitcoins haven't made much headway in enticing the banking industry, the same can't be said of blockchain.

Blockchain is defined as a distributed public ledger, where all the activity is recorded across a decentralized network. Blockchain is made up of 'blocks' wherein the blocks are files where data is permanently recorded. As each block is completed, it makes way for the next block, and a block records all of the most recent transactions that haven't entered any previous blocks. A blockchain is therefore a perpetual store of records. These features of a blockchain can assist banks in many ways - reducing cost and risks, improving efficiency, increasing transaction speed, improving product offerings, and eventually improving customer experience. Banks are now looking at various use cases of this technology, independent of the bitcoin.

The current focus areas among banks remain mainly in the payments space (real-time payments, cross-currency transactions, P2P fiat currency payments, etc.), Trading and settlement, Securities asset servicing, Back-office operations, and B2B services. Banks across regions are exploring the blockchain technology space and the use cases are only going to expand with each passing day. For instance, Santander InnoVentures  (Fintech Investment fund of Santander) has identified around 25 use cases where blockchain technology can be applied.

Few of the banks currently exploring this space include Deutsche Bank, BNP Paribas, UBS, Barclays, Citigroup, USAA, Goldman Sachs, ANZ, Commonwealth, and Westpac. In addition, banks are also entering into agreement with Fintech startups or are investing in accelerator programs (Barclays, UBS, etc.) to launch new services or products that leverage blockchain. Very recently, nine of the world's biggest banks joined forces with New York-based Fintech startup R3 (R3CEV LLC) to create a framework for using blockchain technology in the financial markets.

The widespread interest that blockchain is attracting today, assures us of one definite trend - all major banks now believe that blockchain can add lot of business value. This is forcing banks to invest in blockchain technology and we believe that in the years to come, the adoption of this technology will be more widespread. It is no more a matter of 'If', but merely of 'when'. History alone is the best judge about the significance of an event and same is true of blockchain as well. However, it certainly has set the wheels of major change in motion and only time will tell if it can sustain the fire, which many claim has begun with this invention.

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