Distributed ledger is a technology that offers the potential to significantly disrupt the financial services industry through a new paradigm that could ultimately result in the trade and settlement cycles across many assets shrinking from days to seconds. As with many new technologies, the hype cycle is in full effect, with many highlighting the huge potential of the technology without any references to the fact that market infrastructures evolve through decades not years, and where regulation often lags several years behind technology advances.
The technology for distributed ledger has been – for the most part – proven, and many financial institutions have begun to understand that it can be applied as a technology design pattern that can enable a small network of invited participants to collaborate over a secure network. Key recent developments such as the DTCC’s announcement of a Repurchase Agreement (Repo) proof of concept and the trail of the technology by the Australian Stock Exchange and Japanese Stock Exchanges demonstrate that this technology is beginning to be taken seriously.
The debate fundamentally comes down to interoperability and the “network effect” – can banks cast off their conservative philosophy, and risk averse approach to new technology and work together to build distributed ledgers or will we have to wait until there are outside pressures from regulators or the fintech community before this evolution starts in earnest? In this article, we urge consultancies and financial institutions to be “bold” about blockchain; specifically to develop their thinking away from the headlines and high level narrative and objectively assess the use cases for the technology in detail.