When will we look back on a 12-month period and say, “This was the year of distributed ledger technology”? Might it be 2017?
The signs are that distributed ledger technology (‘DLT’) took a few significant steps forward in 2016, and that we started to see tangible case studies come to the fore. We saw a rationalisation of the DLT hype – DLT will not fry your bacon and secure your payment at the same time! We also saw a growing feeling that DLT is more than just a simple replacement play.
It is becoming obvious that the technology that brought us blockchain is capable of giving us much more. The ‘beyond blockchain’ concept in my mind is better understood from a timeline perspective than a technology perspective.
DLT is a broad and deep conversation and it cannot be confined to replacing an already amortised technology supporting a 60-year old use case; it is a fundamental infrastructure project that is confronting the very nature and culture of financial markets and, in particular, of payments.
It is also asking questions of the regulatory landscape, the legal environment and presenting us with challenges around implementation.
The hype is subsiding and now the actual hard work needs to be done. A number of hurdles will have to be overcome before DLT becomes part of our everyday business world. These include validating the regulatory and legal compliance of solutions, getting the technology and the infrastructure production-ready, migrating existing volume and revenue to the new DLT, as well as expanding to new use cases to finally monetise the investment and reap the reward.
But payments are only part of the story. DLT is bound to change the appearance of the sector and people may even argue it is a metamorphosis that has been long overdue. The roots of this change in the banking industry go back decades but we are living in the end of the box-pushing era and have entered the on-demand world where instant gratification is the norm.
In the cross-border payment world this means the old method of a transaction taking place and payment following days later is no longer considered efficient or acceptable.
Put simply, corporate clients, having seen how the consumer sector is leading the way, no longer understand why business to business is not on a par with this efficiency. In response and to meet customer demand, payments will be modernised like never before.
Once the door is opened, I envisage DLT will start to spread rapidly across many areas and will include both public and private services.
Clearly it will not be restricted to financial products. It is safe to predict that DLT will become mainstream within a decade but already there is talk of capital markets platforms going live in the second half of 2017. DLT is not stable.
DLT promises much, giving financial services the chance to rebuild and develop simpler, more efficient and more transparent processes. We should understand, however, that DLT alone cannot solve all the ills of the current system. It is probably pivotal in tomorrow’s world. In 2016, we started to see the shape of things to come – in 2017, the evidence of the actual benefits of DLT will almost certainly be obvious to all.