Public blockchains, historically seen as a nonstarter for banks, are winning fans in the financial industry.
This sentiment is among the at-times surprising findings of a new study from Cognizant, a technology consulting firm. Over the past two years, banks have come to accept blockchain technology as a useful—and potentially transformative—innovation. Even so, most have tended to dismiss digital currencies and the public, open-source blockchains to which they belong in favor of private ledger systems.
But Cognizant's study reveals that attitudes may be shifting. Eighty-six percent of survey respondents said they believe that public blockchains will gain greater prominence over the next five years, whereas only 80% said they believe the same about private blockchains.
This isn't a massive discrepancy, but given that the respondents were 1,520 executives from 578 financial services firms, it is more significant than it appears.
[Bankers from JPMorgan Chase, Citi, and other institutions will discuss their distributed ledger projects at American Banker’s Blockchains + Digital Currencies conference in New York next week. Register here.]
And the shift in opinion may reflect more than simply greater awareness or understanding of public blockchains such as bitcoin and Ethereum. It could also reflect dramatic changes in the facts on the ground.
Bitcoin, the most popular cryptocurrency, spent much of 2015 and 2016 in the doldrums, leading many corporate leaders to count it out even while embracing its underlying technology. Yet bitcoin has recently surged to new all-time highs, increasing from about from about $1,000 in January to more than $2,900 in June.
Even while shattering previous records, however, bitcoin's share of the overall cryptocurrency market has fallen, as competing systems have begun to capture the attention of technologists, investors and speculators alike. Bitcoin is also facing what may be its greatest test yet, with a technical debate over how to scale the network threatening to split the currency into two competing versions this summer.
Most finance executives now think that blockchain technology—whether public or private—will be crucial to the financial industry's future. Ninety-one percent of executives in Cognizant's survey said it will be "either critical or important to their firm's future." Nearly half of respondents think it will "fundamentally transform" their industry.
And yet daunting challenges remain. Among those the report names are privacy and scalability—concerns mentioned by 69% of respondents—and the significant culture shift that blockchain technology may require as financial firms learn to collaborate with partners. More than half of respondents said that having to work with partners in a wider blockchain ecosystem was one of the biggest obstacles to their adoption of the technology.
In part because of these challenges, many firms seem content merely to learn about blockchains and experiment internally with proofs of concept, according to the authors of Cognizant's study.
Indeed, a survey conducted earlier this year on behalf of New York consulting firm Synechron found that about 25% of senior executives in financial services and information technology were waiting for regulatory guidance before launching blockchain projects.
But the study's authors are unequivocal in condemning this approach. "Waiting for clarity before moving forward is not a viable option," they write.
Instead, they urge companies to look beyond immediate uses for the technology and commit to integrating it into their businesses in order to reap strategic, long-term benefits. They recommend adopting an aphorism used in the pre-internet age by Sun Microsystems: "The network is the computer."
After dallying in the proof-of-concept stage, some financial institutions have come to believe that 2017 is a make-or-break year for blockchain technology. It may turn out to be a make-or-break year for some institutions as well.
As blockchain innovation roars ahead, companies that "linger in the experimentation phase," Cognizant's study argues, will be left behind.