Other parts of this series:
- Blockchain start-ups are training their sights on the insurance industry
- Blockchain could force insurers to radically rethink their businesses
- Major insurers are starting to put blockchain to the test
- Blockchain gains support from technology heavyweights
- Blockchain still needs to clear some big hurdles
Blockchain is garnering growing support from many financial services companies. The technology, however, has to surmount some big hurdles before it can deliver significant benefits to these firms.
Blockchain is attracting lots of interest from a wide range of financial services companies. However, some big hurdles need to be overcome before blockchain applications can start to significantly enhance the performance of these organizations.
Some of these obstacles reside in the technology and methodology of blockchain applications: They include:
Scalability: Blockchain technology currently limits the rate at which transactions can be performed. Successful pilot projects are unlikely to become enterprise applications until this handicap is overcome.
Privacy: Sophisticated analysis might reveal the transaction patterns of organizations engaged in regular blockchain exchanges. Furthermore, companies using blockchain services may expose key data to their transacting partners. Trust guidelines and covenants need to be established.
Security: Although blockchain applications verify that a transaction has taken place the technology cannot prove the ownership of a digital asset. It can only track it once it’s entered the blockchain. Broader and more comprehensive security methods and practices need to be entrenched.
Standards: Since the launch of Bitcoin in 2009 many other blockchain-based digital currencies have emerged. Furthermore, the number of blockchain development languages, platforms and protocols as well as consensus mechanisms has increased. More standards and greater consensus among technology providers is essential.
Organizations looking to implement blockchain solutions face some further obstacles. Most notably, the regulatory framework for blockchain applications, such as digital currencies and asset exchanges, is still vague. Legislation, if it exists at all, often differs from country to country. Blockchain proponents need to work more closely with local and international regulators.
The choice of business and technology partners is another important challenge. The success of blockchain applications will depend on close collaboration with transacting partners. As with other digital ecosystem endeavors, the choice of the correct business and technology partners will be vital.
Finally, the ability of blockchain applications to effect secure peer-to-peer transactions is likely to change the role of business intermediaries. This will require many financial services firms to rethink their business models.
The opportunities blockchain offers are certainly substantial. But to capitalize on this potential, blockchain advocates will need to surmount some sizeable obstacles.
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