How traditional finance companies can safeguard their future in the age of blockchain

null

As enthusiasm towards blockchain builds, how can enterprises take advantage? In recent years a number of enterprise-facing solutions and consortia have been developed to promote adoption and aid integration. Some of the best-known private solutions gaining interest today include:  

The Enterprise Ethereum Alliance (EEA); Many people know Ethereum as the public blockchain that has spawned a wave of ICOs through its smart contract capabilities. What's perhaps less known is the network's enterprise solution. The EEA customises the Ethereum blockchain for enterprise needs to 'define enterprise-grade software capable of handling the most complex, highly demanding applications at the speed of business.' Its membership covers a range of Fortune 500 companies, including Accenture, JP Morgan, Microsoft and Credit Suisse.  

R3 Corda; Corda is a distributed ledger designed for financial services. Its environment does not seek to operate as a blockchain, but rather as a decentralised database that banks and other institutions can use for their processes. Its global network comprises more than 200 institutions, offering integration and interoperability through decentralised applications called CorDapps. It has a wide partner network that includes leading companies such as AWS, Microsoft, Oracle and HP Enterprise.  

Hyperledger Fabric; Backed by the Linux Foundation, Hyperledger is an open-source, cross-industry blockchain collaboration network. Fabric is its blockchain framework integration giving businesses a 'plug-and-play' solution for developing applications through its 'chaincode' smart contract engine. Hyperledger's membership includes IBM, Fujitsu, SAP and American Express. 

These initiatives, along with other enterprise solutions and collaborations, provide the support that businesses need to bring blockchain technologies forward to mainstream commercial adoption. 

There's no shortage of technical whitepapers in existence propagating a range of potential blockchain use cases, from speeding up and simplifying cross-border payments through to bringing the power of banking to billions of people globally that lack access to basic financial services. However, industry acceptance of this new phenomenon needs solid examples of implementation with proven results. Encouragingly, we're now seeing more evidence of blockchain in the real world of finance. A few examples of current blockchain implementations include: 

Identity management/KYC 

Establishing your identity online in a trustless and seamless way is one of the greatest frictions in the current Internet. Online fraud costs nearly £11 billion each year in the UK alone, and consumers are growing frustrated with the layers of identification and security they must go through on multiple sites to prove their identity. Helix Blockchain is tackling this challenge by building its Trust Provider Network - an integrated and consistent identity solution that means identity can be established, verified and trusted, without the user needing to display personal or sensitive information. The system aims to attract business adoption by lowering the cost of data acquisition, validation, management and storage, all in compliance with European regulations. 

Institutional payments and settlements 

The current financial settlement procedures that exist are costly and cumbersome, requiring multiple layers of management to verify and execute payments between institutions. SETL has created a multi-asset, multi-currency institutional payment and settlements infrastructure that helps streamline post-trade administration activity, reduce costs per trade, simplify processes and reduce inefficiencies. Working with payments platforms such as Iznes, the use of SETL’s technology offers the potential to dramatically transform how billions of non-cash payments are made globally each year. 

Equities clearing 

Clearing refers to the process of reconciling purchases and sales of options, futures and securities between financial institutions. Easily overlooked in importance, it’s an area of banking that can cost investment houses billions of dollars to operate. Accenture has estimated that the biggest investment banks could save $10 billion by using blockchain technology to improve the efficiency of clearing and settlement. This is an area being pioneered by The Australian Stock Exchange (ASX), which aims to shift much of its post-trade clearing and settlement onto a blockchain system. Other examples of blockchain implementation in equities include the Nasdaq Linq system, which is used to complete and record private securities transactions, and the CME, which has patented the use of blockchain to store and execute financial transactions. 

Seizing the opportunity 

Blockchain is clearly becoming a more attractive solution for enterprises, but it requires a robust IT infrastructure if it is to function effectively. Industry technology leaders exploring the potential to implement a blockchain environment need to be thinking about two key areas if their blockchain initiatives are to succeed: 

1. Cloud connectivity

While blockchain promises a new form of protocol that allows decentralised applications to flourish, the systems on which blockchain environments live are centralised, and require a high degree of capacity to operate and scale. Cloud infrastructure is therefore vitally important to power blockchain projects. Interxion offers private, secure connections to hyperscale cloud platforms such as Microsoft Azure, AWS and IBM in order to support a high-performing blockchain environment. These cloud providers also offer ‘blockchain-as-a-service’ solutions to aid enterprise integration, such as Azure’s COCO framework, which can be accessed directly and securely via Interxion’s cloud gateways.  

2. Private key encryption

The usage of public and private keys is fundamental to blockchain-based identification and authorisation. Holding a private key gives the user unique access privileges within a private blockchain environment.  As enterprises define workflows and applications on blockchain, ensuring that private keys are maintained in a secure environment is critical. Interxion’s Key Guardian, a private key custody solution, enables enterprises to store and control access to encryption keys and other cryptographic materials to offer the highest level of security. The system also offers key segregation in order to protect against the risk of compromise. 

Where do we go from here? 

Hard-core proponents of Bitcoin and cryptocurrency may project a future where banks no longer exist. Where individuals are self-sovereign and free from the limitations of an antiquated financial infrastructure. Certain aspects of traditional banking, such as payments, will no doubt undergo massive change as we enter a new era of value exchange. However, much of the financial infrastructure that’s served us well for the past century will not be threatened, but instead enhanced by the trust, transparency and efficiency blockchains afford. 

As with any new technology, the early adopters and fast movers stand to make the greatest gains. For businesses seeking to bring blockchain solutions to life, ensuring they have the cloud infrastructure and security solutions in place to meet the needs of an enterprise-scale DLT environment makes them well placed to reap the full benefits of the blockchain. Interxion’s colocation data centres provide the framework and tools enterprises need to launch blockchain projects, with the security, performance and choice of cloud platform required to support a thriving blockchain environment.  

Patrick Lastennet, Director of Marketing & Business Development - Financial Services at Interxion 

Image Credit: Zapp2Photo / Shutterstock