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January 21, 2016

Deloitte: 2016 will see mix of blockchain practicality and imagination.

Tech Update1 209x119Last year major companies realized the significance of blockchain technology stemming from crypto-currency bitcoin, and 2016 will see the start of practical applications as well as completely new use cases--similar to the Internet’s evolution--so corporates must pay close attention or risk getting left behind.

The biggest global banks as well as a few smaller banks and nonfinancial corporates such as Seagate Technologies announced exploring the technology last year, primarily to make existing processes more efficient and secure. Few initiatives actually became reality up. In 2016, however, “leaving the labs” and “next-gen platforms” were two major themes, according to Deloitte Consulting’s recent survey of its “internal cryptocurrency community,” including clients of its Rubix platform that provides clients with blockchain expertise and tools. A third prevalent theme is the development of blockchain-related consortiums, alliances and governance.

Blockchain technology bundles data into units in an encrypted digital chain that is updated in a ledger shared among and monitored by participants. Financial firms, including most of the largest global banks, have taken the lead in terms of exploring the technology, and their initiatives will likely impact their corporate clients. However, noted Eric Piscini, a partner at Deloitte Consulting, only a few blockchain applications are actually in production so far, and they’re limited in scope.

Financial technology (fintech) firm Ripple, for example, has struck alliances with several banks to use its protocol to facilitate and lower the cost of cross-border payments. A few banks have used the technology to perform cross-border transfers between affiliates, but the volume so far has been neglible fraction of global fund transfers. Financial technology firm Abra has launched an application supporting person-to-person cross border payments, but its volume, too, is miniscule.

A second use-case now in production comes from Nasdaq, whose Linq service started using blockchain technology at year end to facilitate tracking and recording transfers of private equity.

“We expect to see existing use cases for blockchain technology come to life, completely new use cases emerge, and an increased number of joint product launches mostly from financial institutions and blockchain startups,” notes Deloitte in a January report about the survey. “Deloitte anticipates that many of these tested financial services use cases, such as cross-border payments, trade settlement, loyalty [rewards], [know your customer], and others, will slowly be rolled out into full-fledged products in 2016.”

For example, Digital Asset Management anticipates launching blockchain technology in the first half of 2016 that will make the loan syndication market more efficient, both for banks and their corporate clients, while Serica has developed blockchain technology to trade commodities.

Those applications aim to improve existing processes. Mr. Piscini said survey results suggest 2016 will see altogether new uses emerging, similar to how the Internet first enabled the more efficient transfer of information and later resulted in new business models.

“The Internet allows much faster and cheaper transfer of information, often in new ways, and blockchain technology will do that for value,” Mr. Piscini said, adding, “Any transaction will be accelerated and cheaper than before blockchain. So if you have a business with transactions—pretty much any business—you need to consider blockchain as a way to improve those transactions.”

Survey respondents also pointed to 2016 as the year when blockchain technology matures in terms of alliances and governance. The report notes that for blockchain to be effective multiple parties must be involved. The New York-based R3 consortium comprises a group of more than 40 companies to drive innovation and standards in financial services.

“In the Internet age, governance bodies came to life to create and maintain standards as well as ensure interoperability,” the report says. “Similarly, 2016 may give rise to blockchain governance and standards, especially for public blockchains.”

Very large companies, Mr. Piscini said, may have the clout to prompt financial technology companies to do their bidding, playing a leadership role in the technology’s development.

Smaller companies may choose to work closely with blockchain technology startups to develop solutions, noted Mr. Piscini, adding, “Or they may organize themselves through an organization for corporate treasurers, for example, to push for something better in a specific use case, whether trade finance, supply chain, or something else.”

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