Separating the hype of Blockchain from reality is important. So, some interesting remarks from Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank on the subject. The debate has largely shifted from open blockchain applications, such as bitcoin, to closed networks with a limited circle of participants. But doubts will also increase as to whether this technology can meet the expectations being placed on it.
Many enterprises and institutions currently working on blockchain-based solutions expect to reap great benefits from them. Blockchain technology holds out the promise of cost savings, de-risking potential and efficiency gains. This includes, among other things, the automation of work-sharing processes as well as faster processing and the fulfilment of contractual obligations via smart contract solutions.
One positive effect that can already be seen is industry-wide cooperation. Dialogue between various market participants on future market developments can foster mutual understanding and facilitate the harmonisation of processes. This makes it possible to adequately react to the challenges posed by new technologies. This is of importance in the financial industry, in particular, which is characterised by network effects.
That said, one should not simply gloss over the challenges and weaknesses posed by the technology.
The requirements imposed on regulated providers cannot currently be met by blockchain technology, or can only be met with difficulty. This concerns, for example, the question of how to engineer absolute finality. Furthermore, the know-your-customer requirements need to be observed and the confidentiality of transaction data must be ensured. This is also a reason why the regulatory status of blockchain technology in many countries is still unclear.
Furthermore, despite the supposedly greater resilience of its decentralised structure, blockchain still has high obstacles to surmount before it can be applied across the board, owing to its susceptibility to manipulation. Recent hacker attacks are a case in point.
This is another reason why the debate has largely shifted from open blockchain applications, such as bitcoin, to closed networks with a limited circle of participants.
Inefficiencies are often perpetuated not by a lack of technology, but by (historical) structures. Blockchain technology is therefore not a patent solution for change, but it does provide an opportunity to make change.
Disruptive technologies require time to develop, mature and unfurl their full potential. Not every innovation succeeds, though, and it remains to be seen how the application of blockchain technology will develop.
Following the revolutionary beginnings with bitcoin, the prevailing view now seems to be that blockchain applications will spread rather more gradually. One might therefore speak of evolution rather than revolution. Before we can even ask questions about the broader use of this technology, we must first be sure that using this new technology is at least as secure, efficient and cost-effective in financial transactions as conventional technology.
Blockchain technology could become a game changer, in the financial industry and, perhaps in particular, beyond. The potential of blockchain technology is often compared to that of the internet. It should be remembered that it took some time before the truly beneficial applications of the internet emerged. With blockchain, we are only at the very beginning of a potential development of this kind.
Innovations are the lifeblood of a continually developing economy. Moreover, evolution processes are never linear. The first great wave of euphoria, which was also seen in the media, is being followed by a phase of checking, weighing-up and consolidation, before new offers and technologies are rolled out on a broad scale.
Ladies and gentlemen, Goethe once said: “We know accurately only when we know little; with knowledge doubt increases.”
My impression is that with the increasing efforts being devoted to blockchain technology, doubts will also increase as to whether this technology can meet the expectations being placed on it, which in some cases are extremely high.
