Blockchain has the potential to be the most significant technological innovation since the Internet, according to a recent survey of financial services executives.
A new study released today from Pegasystems, Cognizant and Marketforce found that 60 percent of global financial services retailers with an understanding of blockchain believe it is potentially game-changing technology.
However, that said, there exists a significant gap in understanding—more than one-third (35 percent) of all global respondents admitted they have never heard of blockchain, and of those who had, nearly a quarter (23 percent) said they had no understanding of the technology.
A blockchain is essentially a distributed database that enables users to design a digital ledger of transactions and share it among a distributed network of computers. Blockchain is the technical foundation of Bitcoin and other cryptocurrencies, largely because it provides a transparent, secure and simple way to transact business. The core components of blockchain are a network of computers, a network protocol and a consensus mechanism.
For the study, Marketforce surveyed 500 financial services and insurance industry executives across 56 countries to examine the challenges and opportunities they face. Despite the fact that a large chunk of survey respondents were unfamiliar with the workings of blockchain, the study found that those who understand it think it will have a significant impact on the financial services industry.
"For many, the jury is still out on whether … blockchain will be a force for good or not," said Graham Lloyd, director and financial services industry principal at Pegasystems, in a statement. "However, we do know there's no longer room to be complacent about such a potentially significant source of disruption. Banks and insurers must prepare themselves for the day when they might have to manage blockchain-stored customer data—whether it be their personal information, details of their assets, or even real-time data from virtual currencies."
More than half (53 percent) of the survey respondents said they believe blockchain would have a significantly disruptive impact in the clearing and settlement markets, while more than one-third (36 percent) said they expect to see significant disruption from blockchain on the checking accounts market. Meanwhile, almost half (45 percent) of the respondents said the combination of blockchain wallets and peer-to-peer lending has the potential to end banking as we know it.
Pegasystems' Lloyd indicated that financial services industry leaders should be doing more to educate themselves on the benefits of blockchain.
"They will need to take the time to understand blockchain and how this emerging technology could affect them moving forward," he said. "The earlier this technology is understood at the highest levels of the business, the sooner organizations will be able to develop strategies to mitigate risk and harness the power of digital transformation. The smart players are those who already have teams dedicated to exploring this new technology."
Earlier this month, IBM testified before the President's Commission on Enhancing National Cyber Security about the potential for blockchain to become the technology foundation for conducting transactions over the Internet.
Jerry Cuomo, IBM's vice president of blockchain, testified before the commission in New York, stating that he believes blockchain could potentially cause a "tectonic shift" in the way financial systems are secured and that government, technology companies and industries should work together to advance blockchain to enhance national security.
"Blockchain has inherent qualities that provide trust and security, but, to fulfill its promise, the core technology must be further developed using an open source governance model to make it deployable on a grand scale," Cuomo said in his testimony.
Moreover, government must play a central role in advancing blockchain. The National Institute of Standards and Technology (NIST) can help shape standards for interoperability, privacy and security, Cuomo said. "And government agencies can become early adopters of blockchain applications," he said. "In addition, government has a key role to play in certifying the identities of participants in blockchain-based systems."
In his testimony, Cuomo identified four areas where government and industry should work together on blockchain: proof of identity, data provenance, secure transaction processing and sharing intelligence.
Indeed, blockchain is potentially a game-changer, he said.