Treasurers should not exclusively rely on their banks to provide blockchain technology innovations, otherwise corporates risk missing out on efficiencies and costs savings, warns Grainne McNamara, principal adviser at PricewaterhouseCoopers (PwC).
McNamara argues that, if businesses expect their banks to deliver blockchain innovation, banks may simply reinvent their existing model inside blockchain, which may not be cheaper to corporates.
“The goal of blockchain ought to be to eliminate some of the intermediary steps and to make things cost less. If that’s not happening because banks are dominating some of the conversation, then I don’t think that’s good for corporates that are using banking services,” McNamara tells GTNews.
“I would say that’s not a very forward-looking strategy,” she adds.
“Perhaps some of these corporates haven’t been able to spend the same amount of money on technology as their banks, so they are looking to the banks to help guide them,” she tells GTNews.
Other large organisations looking to support corporates with blockchain innovation include technology firms and credit card companies. Visa, for example, has been very vocal about their attempts to develop their own blockchain solutions for corporates and financial services.
In June this year, Visa was publicly advertising job vacancies specifically seeking blockchain engineers with experience in distributed ledger technology (permissioned blockchains which run under centralised control).
“I think it is a mistake to not include fintech and technology companies in the people that you ask for advice these days. The biggest companies in the world are technology companies now.
“Companies that are forward thinking are looking at how we engage the whole ecosystem in [digital] transformation. That could be banks, customers, fintech startups and other advisory firms,” McNamara explains.
Treasurers often say they lack the specific use cases for blockchain to get funding for the technology from the boardroom.
This partly because the benefit would arise to a conglomerate of organisations, rather than just one, McNamara explains.
One corporate funding the development of blockchain technology that would benefit a group is “perhaps not the right way to go”, she advises.
“What organisations have to do is form consortiums and also engage other people who can help fund through that transformation because it does cost money. Think about who else would benefit from the technology,” says McNamara.
“If you’re smart about it and want to be an industry leader, you don’t have to pay for the whole transformation yourself”
“Large technology players benefit such as cloud providers are very interested in partnering with industry groups that will drive cloud adoption for example.
“If you’re smart about it and want to be an industry leader, you don’t have to pay for the whole transformation yourself. If you have a business case that drives value to your customer, then I’m pretty sure you can find several other players in the ecosystem that agree with you and will help fund the transformation,” she argues.
Trade finance blockchain: a match made in heaven
Trade finance appears to be the most common use for conglomerates of businesses deploying blockchain. PwC has worked in such a consortium with Microsoft.
One example of this can be seen in GTNews’ recent interview with the treasurer of The Port of Rotterdam on how his company is working on trade finance and supply chain blockchain application use cases.
McNamara thinks the world has seen the most activity around trade finance use cases for blockchain because it’s an obvious example of how a group of companies need to work together.
“It’s a heritage product and in some cases, it is the main products that treasures use. If you can captivate people with such a simple product and make it better then they’ll trust you to do more advanced things with this technology,” she explains.
Tackling blockchain scalability issues
One issue with some of the older forms of blockchain, such as the technology bitcoin sits on, is that it stores so much data it becomes difficult to run quickly. This is also known as ‘blockchain bloat’.
Many companies are working on more scalable blockchain solutions, such as Jelurida (the development company behind the Nxt and Ardor blockchain platforms) and Dash. Ethereum is a more scalable form of blockchain in comparison to bitcoin.
The Enterprise Ethereum Alliance is also currently working on what needs to happen to make blockchain run faster with larger data sets in an enterprise environment; in an enterprise.
“The issue of scalability is partly to do with the configuration of a blockchain network and how the consensus mechanism is working,” explains McNamara.
Blockchain has network ‘nodes’ that validate incoming data. This validation system can be computer intensive validation depending on how you design that mechanism.
For example, the public blockchain network that bitcoin sits on uses a mining process called proof of work or proof of stake which is very computer intensive.
However, for a private blockchain network where it is permissioned, “organisations could use a lighter weight consensus mechanism and still achieve the same result arguably. That’s what people are testing,” says McNamara.
“[Developers] want to make sure that when a blockchain network is made to go faster, and the census algorithms are slimmed down, they don’t throw the baby out with the bathwater and make it less secure. That’s the big debate.
“If we move away from the public networks where every node is a validation node, we can move into a slightly lighter weight models with trusted parties engaging with each other. But have we lost anything?” she asks.