2017 and 2018 have both been predicted to be the year blockchain breaks through to the mainstream in fintech, but as of today businesses are still floundering when it comes to finding use cases for the innovative technology. This has not prevented pioneering treasurers from diving into the sandbox to experiment though.
Take, for example, the Port of Rotterdam, which is establishing a subsidiary to experiment with its clients to understand technical implications as well as the business benefits of blockchain. Tim de Knegt, treasurer and manager of strategic finance and treasury for the Port of Rotterdam, has reinvented his, traditionally, inward-looking role within his company.
The Port established its blockchain subsidiary in early July and it is due to go live in November. It has already reported global interest from governments, tech companies and financial institutions alike. International inquiries have come from the likes of Singapore, Dubai and Los Angeles and from companies such as Google and IBM.
While it has not yet implemented any software into production yet into the company, de Knegt tells GTNews: “We believe blockchain technology is a game changer, and not just for the financial industries. It will change other industries such as logistics and energy as well.
“The most interesting area for me is logistics. It is quite a fragmented industry right now. There are a few players that dominated the market and lots of smaller players. There is more efficiency that could be made in supply chains and from a risk perspective.”
“Many blockchain use cases which eliminate inter-organisation or cross-organisation trust issues may impact the work of the corporate treasurer,” argues Lior Yaffe, senior developer and managing director of tech firm Jelurida and core developer of blockchain platform Ardor.
“There are many applications that require third parties who do not trust each other to conduct business provides opportunity for the introduction of a blockchain in which all transactions are digitally signed, timestamped and potentially transparent to all participants,” he explains.
Treasurers must look outwards
General treasury and financial teams are often keen to operate in relative isolation, but they could bring more value to their companies by being outward looking using the knowledge that they acquire, argues de Knegt.
The main benefit of blockchain will not come from using it as a single company, but as a group of companies due to the scalability of the technology, he contends.
“[Treasuries] can add a lot of value to the sales process and create better external relationships with their own clients. They should look further than their own bubble. They should optimise systems and processes in the companies and within their own supply chains.
“I work with some of our largest clients to see how, from a treasury point of view, I can add value to their role.
“Blockchain is not necessarily a starting point for a general treasury. I don’t experiment with it from a treasury point of view but more from a business point of view. I look at physical and virtual transactions. That is where my role differentiates from the traditional treasurer.”
Northern Trust’s escapades into blockchain are an example of how outward-looking partnerships can benefit a business. After launching what is potentially the first fully functioning blockchain for trading private equities in February 2017, the bank is now preparing for more advanced applications of its blockchain platform.
The US bank’s blockchain platform initially had four nodes powered by Hyperledger’s open source Fabric codebase. Swiss management firm Unigestion was the opening client. The technology has been processing transactions since February.
Over the next few months, Northern Trust plans to upgrade infrastructure so that the bank can spin-up nodes for any number of limited partners, general partners and more.
“Current legal and administrative processes that support private equity are time consuming and expensive,” said Peter Cherecwich, president of corporate and institutional services at Northern Trust.
“A lack of transparency and efficient market practices leads to lengthy, duplicative and fragmented investment and administration processes.”
“Northern Trust anticipates substantial opportunities to bring improvements to the private equity market by using blockchain technology,” says Justin Chapman, global head of market advocacy and research at Northern Trust.
“This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators, advisors and auditors.”
How big are the barriers?
Two much-discussed hurdles that are preventing widespread blockchain implementation are scalability and working proof of concepts when it comes to blockchain treasury management. This is partly because blockchain applications in the corporate world are still in their infancy, “so it is hard to testify about specific use cases,” Yaffe tells GTNews.
With such a fast-paced level of innovation in the tech industry, it is surely only a matter of time before adequate solutions to scalability are proposed. Yaffe claims that his new product Ardor, a blockchain-as-a-service platform, already offers a solution to scalability and blockchain bloat (a build-up of data making the system less efficient). It also uses features such as decentralised phasing, voting, and trading making it a useful tool for corporates.
But while the technology, and number of transactions, you can do with it is vital, the key component needed now is participation from all parties to discover value added services for a group of businesses.
For example, in a trade transaction the Port of Rotterdam may rely on information from others to ensure supply chain compliance, but if all parties participated in a blockchain solution, the technology could automatically prove that every participant is compliant.
Traditionally treasurers will look for a working proof of concept that is scalable enough to get the results they want before implementing a new system. But the traditional method does not work here as the technology is so new. Therefore, Knegt argues, treasurers are required to innovate and look at how they can bring value to their clients as well as their own businesses if they want results.
“There are lots of small systems that are improving but these do not deliver on what they promise”, says de Knegt. “You need to find the right use cases.”
Blockchain tokens must be multilingual to compete
Another key hurdle to widespread usage of blockchain and fintech in treasury is that blockchain tokens are not currently suited to any device, argues de Knegt. “Eventually blockchain should be like Microsoft Office – you can use it on a Mac, a PC or an iPad. You will be able to use the token on any type of computer,” he says.
However, Yaffe says from purely technical perspective, this is not a hindrance to adoption. “Blockchain applications with rich cross platform user interfaces are available now,” he insists.
Yaffe sites the wallet application of Ardor, as an example. “Unlike most other blockchain technologies, Ardor and NXT implement a reference user interface for every feature and transaction type they provide. This includes desktop, web and mobile support.
“However, private blockchain is an infrastructure technology which mainly benefits large corporations, consortiums and government. These entities take a long time to evaluate new technologies where implementation cycles can take several years.
“I expect the first real private blockchain applications to be deployed to production around Q3 of 2018 but wide spread deployment may take between three to five years.”
Ardor’s blockchain technology is preferable for corporations to the blockchain that bitcoin sits on, argues Yaffe. “[The blockchain behind] bitcoin is designed for a single purpose, transfer of value between accounts, all other applications on top of bitcoin use various workarounds to squeeze data into the blockchain not for its intended purpose.
“On the contrary, Ardor, based on the NXT blockchain technology, is designed from the ground up for extensibility using a modular transaction types architecture which can be easily adapted for various use cases,” he says.
Hear more from Tim de Knegt on blockchain and fintech in treasury by attending the Treasury Leadership Summit in London this December where he is hosting a seminar titled: Blockchain: Building a case for an improved financial system.