It was recently announced that IBM’s blockchain project, which has been on its way for a while, has launched. The project, a platform designed for financial service firms, is designed to bring the much-hyped distributed ledger technology (DLT), to a serious, highly regulated and very profitable industry.
With the announcement of LedgerConnect, which IBM has designed alongside foreign exchange market infrastructure firm CLS, there is now a proof-of-concept platform that can potentially help financial service firms with a number of regulatory, compliance and technical issues. These include KYC and AML, collateral management, sanctions screening and more.
Though IBM is a leader – or at the very least trying to portray itself as a leader – fintech is an area in which blockchain technology has taken hold more generally. Setting aside applications like cryptocurrencies, the reason why blockchain may be so popular in the fintech industry is because of its advertised ability to create trust where it is so desperately needed.
Blockchain, its proponents say, allows users to follow every step that is taken in a process because of its core qualities – the distributed ledger, which thanks to the mathematics behind it, is immutable. It is tamper-proof, blockchain enthusiasts argue, because it would become immediately apparent if anyone had altered the chain.
And the technology has got buy-in not just from industry, but from the government too. Earlier this year, Matt Hancock MP, who was until recently Minister for Digital, Culture, Media and Sport (and creator of the eponymous and infamous Matt Hancock App), spoke at the Law Society, arguing that blockchain is a “technology which is set to have a monumental impact on our lives.”
“The UK has already been reaping the benefits that fintech can bring,” he continued. “It employs 61,000 people in the UK, more than the combined Fintech workforce of Singapore, Australia and Hong Kong. In June 2017, the UK’s top ten publicly-traded fintech businesses crossed the $100 billion market capitalisation mark for the first time, a value of £71 billion.
“And our financial regulators are leading the world in encouraging innovation. The Financial Conduct Authority’s Sandbox, which lets firms test products and services in a live market environment but with appropriate safeguards, is being copied by like-minded countries around the world. And across the first two cohorts of companies it supported, the most popular technology employed was blockchain.”
Though, of course, government announcements have to be taken with a fairly significant pinch of salt, to have a government minister so openly praise a technology that remains controversial is definitely significant.
In his speech, Hancock went on to also play up the benefits that blockchain may be able to bring to other industries. Due to the aforementioned ability to track events, blockchain has unsurprisingly gained ground in the supply chain and transportation industries.
These, much like IBM’s financial services plans, are a world away from the bluster, hype and suspect behaviour involved in Bitcoin, ICOs and cryptocurrencies. Instead, they’re looking to tackle real-world problems involved in major enterprise businesses.
Maersk, the world’s largest container ship and supply vessel operator, has embarked on a partnership, also with IBM, to explore blockchain solutions that can help smooth shipping around the world. According to the company, it will ‘address the need to provide more transparency and simplicity in the movement of goods across borders and trading zones … [as] the cost and size of the world’s trading ecosystems continues to grow in complexity.’
The opposing view
Despite these developments, others aren’t so sure. Rory Cellan-Jones, the BBC’s technology correspondent, is an outspoken critic of blockchain. Having attended a blockchain conference in London, he wrote: ‘We made our way around the conference asking people to give us a clear explanation of blockchain and to explain why it was so exciting. Many struggled to sum it up in a sentence.’
And Financial Times journalist Izabella Kaminska has argued that the reason blockchain, and its associated fundraising methods of ICOs, is so popular, is because of its ability to avoid time-consuming and difficult financial regulation.
The number of ICOs that have turned out to be scams is worryingly large. One particularly problematic red flag is how many ICOs are incredibly vague and contain terms and conditions that mean that the token people are buying into has no actual value of its own.
While BBC and Financial Times journalists put their blockchain criticisms in relatively polite terms, some don’t hold back at all. Author of Attack of the Fifty Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts, David Gerard, writes in his book: ‘New technologies will keep being used as an excuse to put an extra layer of flim-flam over old scams, in an ongoing historical re-enactment of the reasons for each and every financial regulation.
‘Everything to do with cryptocurrencies and blockchains is the domain of fast-talking conmen. If anyone tries to sell you on either, kick them in the nuts and run.’
This is perhaps unfair, and certainly a brutally honest summary of Gerard’s viewpoint, but it’s useful to bear these criticisms in mind and avoid the hype.
Something worth considering is that big, blue-chip companies like IBM, which is finally back on a roll after years of negative growth, rarely invest in major new projects without a considerable amount of thought and research. Financial institutions are also notoriously cautious, highly-regulated, and full of smart people. If these companies are investing, blockchain technology will at the very least break away from its murky origins.