Blockchain reaction: Tech plans for critical mass
Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries (or centralized authorities) in industry after industry.
Banks, traders, exchanges and regulators are involved in many pilot projects and have launched multiple industry consortia to study blockchain’s use.
In a New York City neighborhood, a private experimental blockchain helps homeowners share solar-electric power generated on their rooftops without the local power utility’s involvement.
The blockchain reaction will pull in different industries at different times with differing levels of disruption, bringing both opportunity and risk.
Understanding the nature of that pivot, and the tax, legal and policy questions it will raise, will take time and preparation.
We anticipate critical mass in financial services technology in a 3- to 5-year time horizon, with other industries following quickly.
What if blockchains remake work, life and play the way the compass changed seafaring, internal combustion engines changed transportation or penicillin changed medicine?
One reason the blockchain reaction is racing toward critical mass faster than previous disruptive technologies is that it is arriving in the midst of the digital transformation already sweeping through most sectors of the global economy.
Consequently, despite the obstacles still to be overcome, businesspeople and governments are preconditioned to recognize blockchain’s potential. Tech companies have already established much of the digital infrastructure required to realize blockchain business visions.
The “embedded finance” scenario
In financial services, the first round of blockchain pilots is exploring more efficient ways to provide today’s services, such as transferring equities or other financial instruments in blockchain environments with potentially faster settlement and far lower transaction costs.
But the long-term blockchain vision is of markets that run by themselves, with finance embedded directly into the natural activities occurring within those markets. In such an environment, the finance industry will look very different than it does today.
Automotive ecosystem with embedded finance
One possible near-future “embedded finance” scenario involves a blockchain hosting all-inclusive records of an automotive ecosystem. Ownership, financing, registration, insurance and service transactions could all be tracked together.
Such a blockchain would make it possible for a manufacturer of driverless cars, for example, to place its cars in a ride-hailing company’s fleet. Every time the car is paid for a ride, a blockchain smart contract with embedded financing delivers a revenue share to the manufacturer.
The manufacturer may never need to “sell” a car to a consumer; it may not need bank financing, depending on the long-term cash flow resulting from its share of every transaction entered into by its products.