Banks’ attitudes toward blockchain
The attitudes of financial corporations and banks toward cryptocurrencies have varied from sharply negative to cautiously distrustful, but blockchain technology is highly regarded even by many cryptocurrency haters.
Shortly after bitcoin appeared, developers and financiers began to pay attention to the technology and look for new uses for it. The idea of an open, decentralized and anonymous system did not work for them, but the idea of a controlled version of blockchain did. In 2014, Barclays, Goldman Sachs, JP Morgan, and several other financial institutions created the R3 consortium to explore blockchain applications in finance.
This is how blockchain technology evolved into a distributed ledger approach, where participants who add a block are identified and the data is partially hidden and not available to everyone. The R3 project soon released the Corda distributed ledger.
Between 2012 and 2015, funders devoted significant resources to researching this technology. Blockchain seemed like a “magic pill” to solve all the problems of the banking system. Soon the financial sector was followed by others – the public sector, insurers, and automakers. But despite testing and launching new networks, no major breakthroughs occurred, and starting in 2017, predictions about blockchain became more cautious.
Disadvantages and limitations of blockchain for banks
As it turns out, blockchain is not a universal technology for banks. From the beginning, R3 emphasized the need to process huge amounts of data without third-party interference and while maintaining process transparency. That is why the consortium abandoned blockchain development in 2017. The developers stated that the technology was not designed to handle large data sets, was poorly compatible with banking standards, and its implementation did not fit into their vision.
Technically, blockchain requires enormous storage capacity, as each node must store a copy of the state of the entire chain. And by 2020, the world is projected to have 20 billion connected devices: that’s an incredible amount of data for blockchain.
Blockchain has problems with regulators as well as scalability and security. Although it is extremely difficult to hack a blockchain network (no one has succeeded in ten years of bitcoin’s existence), small networks have the possibility of a “51% Attack.
In addition, in recent years there have been major advances in quantum computing. It is possible that over time, the most powerful quantum computers can break the codes used to confirm transactions. The solution could be to upgrade protocols to new ones that are resistant to quantum computing.
Developments in this niche are ongoing. In 2019, the International Association for Trusted Blockchain Applications – IATBA, the European International Association of Trusted Blockchain Companies – emerged in Europe, with 9 banks as members. Its work should contribute to the creation of a blockchain infrastructure in Europe with all the security requirements and to get rid of regulatory uncertainty. The European Blockchain Partnership is the founder of the Association.
The number of blockchain projects outside banks is growing. According to a 2019 study, high-tech financial companies, including blockchain, are actively developing in Switzerland. At the beginning of 2019, there are already 356 such companies: 62% more than in 2018. Today in Switzerland, a significant volume of transactions passes through blockchain platforms. Little by little, such companies are winning back market share from banks and other traditional financial institutions. And this is Switzerland, one of the leaders in the global financial market.