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Big Ideas for 2016

Accept It: The Blockchain Will Be Part of Your Bank's Business

You've heard the hype.

But you recognize that most of it is coming from people with a vested interest in seeing blockchain technology become the big thing that they think it will be — Blythe Masters, for one.

The JPMorgan Chase veteran is the chief executive of the blockchain technology company Digital Asset Holdings. So you have to expect her to talk up the blockchain as she has, tout its potential to change the way the financial world operates, emphasize how it can reduce risk, improve efficiency and ultimately provide better customer service.

Among traditional bankers, some might agree there's great potential in technology that facilitates an immutable record of transactional data.

Yet many remain skeptical about anything associated with bitcoin. Eyes glaze over at the details of how it works. Applications for the average bank seem to be distant still.

If this is how you think about the blockchain — that is, when you think about it at all — expect to be paying far closer attention soon. "The biggest idea in banking right now is blockchain technology," says Brad Leimer, the head of innovation for Santander Bank.

Leimer is quick to say he's not a bitcoin, blockchain or distributed ledger technology expert. But he considers the blockchain "big news" that banks of all sizes should care about. "It has fundamental properties capable of changing just about every financial transaction that people do today," he says.

A recent post on Simon Taylor's Innovation Blog — talking about the stages of blockchain understanding — is one Leimer relates to personally. Leimer says Taylor is right when he says people go from being dismissive of bitcoin as a currency, to curious about the underlying technology, to incredibly excited about the use cases.

"I've seen not only myself but my company go through that in the last 12 months," Leimer says.

When he started in his current role just over a year ago, he asked what Santander was considering doing with the blockchain. The answer was not all that much, "because it's connected to bitcoin, it's sensitive politically, and it's sensitive in regulatory circles." Now it's working with fintech startups on a variety of ways to use the technology, with trade finance being one of the areas Leimer is most excited about.

"2015 was the year that bitcoin was pulled out of the blockchain discussion and it became a technology," he says. "In 2020, we need to be actively leveraging this technology in day-to-day use."

The value of the technology has to with how it enables new forms of money movement and data storage that is cryptographically secure, he says. "Data and money have always been associated, but they've never been able to be encapsulated together. That really starts to make you think, 'What can that actually do?'"

One idea is a smart contract between two corporations that allows the release of a portion of funds whenever certain parameters are met in the shipment of goods.

As more data is stored via blockchain over the next decade or so, other possibilities open up, Leimer says.

"We're talking about mortgages that can be originated and closed within days, and potentially hours, if all of the data that was required for a mortgage was on the blockchain — searching for the title, checking that there are no liens against the property, all of the things that make mortgages take time," he says. "If all of the data was on the blockchain, it could simply be tapped into."

Leimer says even CEOs at community and regional banks should be learning about the blockchain and talking to their technology providers about it. "The question they should be asking themselves is, 'Are we missing out by letting the biggest banks develop this new paradigm?'"


(1) Comment



Comments (1)
It's important to understand that Bitcoin/bitcoin is two things. First and foremost Bitcoin with a capital B is a Value Transfer Network that works by way of a Distributed Public Ledger. Once information hits that ledger it is there forever.
You might ask: "But what about the server or company - can't THAT be shut down or hacked?"

The answer is No it cannot. First, there is no company and there is no server. The algorithm that is running is Distributed over tens of thousands of computers world wide. As long as one single little laptop is running the algorithm, Bitcoin, the Value Transfer Network keeps going. So unless the electricity goes off and the Internet stops working, Bitcoin with a capital B will be working. Period.

It is well worth the time to do a little reading online. There are now some great sites that clear up a lot of the misconceptions about Bitcoin the protocol and bitcoin the currency. If you are a banker or in any type of finance, it would serve you well to order the definitive Bitcoin book entitled Mastering Bitcoin - by Andreas M. Antonopoulos.
In this book, among other things, you'll learn that Bitcoin is "The Internet of Money". In other words, Bitcoin is the beginning of a new paradigm in finance - banking and finance and contracts and legal matters and land disputes, medial records, real estate matters and on and on - all of these will be radically changed in the coming decade. That's right in the next 10 years - and less in many instances.

bitcon with a lower case b is, for all intents and purposes, the world's first digital currency. There have been others but none that have caught on like bitcoin. Think of bitcoin the currency as nothing more than the first app (like an app on your smartphone) on the Bitcoin Network. Bitcoin the Base Level Protocol uses bitcoin the currency to operate. There are a lot of technical details needed to explain the intricacies of this relationship between Bitcoin the protocol and bitcoin the digital currency.

A good Bitcoin consultant can explain all of this in detail and there are many ways to get up to speed on this new technology. In fact Stanford University is currently offering a course in Bitcoin taught by Dr. Balaji Srinivasan and Dr. Dan Boneh. But I would recommend buying the book by Andreas M. Antonopoulos.

And for those people who still doubt the potential of Bitcoin and bitcoin, just try to remember that this is a Computer Science innovation and not some geek game. Bitcoin is actually the most important technological invention since the Internet itself.

Thanks for your time!

John Barrett
Host of Bitcoins and Gravy
Posted by BitConsult | Thursday, January 07 2016 at 10:14PM ET
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