Distributed ledger technology is currently the bull in the chute waiting for its moment to take out a few rodeo clowns. But before it can do that, it needs some more experience, according to a report put together by SWIFT, the global financial messaging provider, and partner Accenture.
“Our analysis has demonstrated that DLTs have the potential to bring new opportunities and efficiencies to the financial industry,” SWIFT said. However, SWIFT’s assessment also showed that, “while some solutions have been successfully deployed in proofs of concept, existing DLTs are currently not mature enough to fulfil the requirements of the financial community.”
SWIFT said the requirements the DLTs need to master in order to be more widely adopted include:
- Stronger governance;
- Better data controls;
- More compliance with regulatory requirements;
- More standardization;
- An identity framework;
- More robust security and cyber defense;
- Better reliability and scalability
For DLTs to be more widely used, SWIFT said, “further research, development and testing is needed to fully understand the capabilities of the technology and the business use cases best suited to it.”
Still, while banks and other financial institutions will likely keep up with the advances in distributed ledger, there is a potential for a creeping lack of interest if banks’ own clients don’t become more engaged. At least one recent study shows that this can happen. A study released in February by the Aite Group, based on in depth interviews with bankers, corporate executives and technology experts, found that most corporates are unfamiliar with potentially groundbreaking blockchain technology, and those that are will most likely take a “wait-and-see” approach to adopting it.
One reason corporates aren’t glomming on to the new technology is that existing partner relations are strong. And using DL can be seen as fixing something that isn’t broken. For instance, DL or blockchain transactions are called “trustless” because the parties involved use smart contracts that automatically execute the transaction only if specified conditions are met, and while they may not know each other they exchange value with certainty and no need of third-party validation. However, the Aite report noted, corporates typically have a high level of faith in their immediate suppliers or customers, so a trustless blockchain adds little value.
And as SWIFT noted in its study, “DLTs should not be viewed as a silver bullet to resolve all business issues; potential use cases should always be assessed to determine whether or not the key strengths of the technology could combine to resolve the business issue in question.”