The potential uses for blockchains in all of their various forms are piling up, and everywhere you turn another multinational corporation, industry organization, central bank, or government has come out with a research paper extolling the benefits of blockchains, distributed ledger technology, and even Bitcoin itself.
BraveNewCoin (BNC) has put together a complete set of industry research papers on the subject, divided up by year and quarter, with useful summations of each paper. Over 140 research papers are listed on the BNC so far. We highlight the largest trends below as an introduction to this important resource library.
Not having a blockchain strategy today is like not having an internet strategy at the turn of the century. If your corporation or group uses documents or keeps records in any official way, someone has come up with a way for blockchains to improve the efficiency and trustworthiness of your process.
The European Central Bank, which was behind more than a couple of these papers, started the trend of separating Distributed Ledger Technology (DLT) from blockchain technology, defining the former as “a record of information, or database, that is shared across a network. It may be an open, publicly accessible database or access may be restricted to a specified group of users.” The same report then credited blockchains as “the technology that makes this possible.”
Many other definitions exist but this hierarchy between the two is an apt comparison that few others have managed to capture. An exception came in January, when the UK Government’s Chief Scientific Adviser, Sir Mark Walport, released a lengthy report for his government that does perhaps the best job of describing the big picture for the whole field of technology. You can even read our summation of the report here.
Disruption was a major theme across all reports. In December 2015, Goldman Sachs' Emerging Theme Radar Equity Research report stated boldly that "What if I Told You … the Blockchain Could Disrupt … Everything". Goldman Sachs claimed that "This solution [blockchain] promises to not just address consumer opportunities but also those for the far more lucrative enterprise."
In April, Morgan Stanley Research published a 31-page report on whether blockchain is a disruptive threat or tool in banking. While explaining several misconceptions, Morgan Stanley report identified 10 hurdles to overcome before blockchain could become a reality in banking. "The opportunity is clear but the blue sky is too far off to impact our 2017/18e,” they wrote. The report also includes an interview with Blythe Masters, CEO of Digital Asset Holdings.
Several reports focused heavily on regulations, too. The European Securities and Markets Authority (ESMA), Europe’s market authority, published several suggestive, regulatory-themed papers and made statements about regulating Distributed Ledger Technology since, being careful to stay away from the topics of bitcoin and cryptocurrencies.
“ESMA is mindful of the issues raised by virtual currencies such as Bitcoin. However, it is important to stress that ESMA’s work on the DLT is limited to the application of this technology to securities markets. Indeed, issues related to the payments aspect of virtual currencies are outside the scope of ESMA and are treated by other institutions such as the European Central Bank or the European Banking Authority.”
In June, ESMA published a discussion paper titled 'The Distributed Ledger Technology Applied to Securities Markets' inviting public comments. "ESMA will use the feedback to this discussion paper to develop a position on the use of the DLT in securities markets and in particular to assess whether a regulatory response may be needed," the paper reads.
In April, European Central Bank (ECB) published a paper titled 'Distributed ledger technologies in securities post-trading,' discussing three potential models of how DLT could be adopted for post-trade functions; in clusters, collectively, or peer to peer. At the end of the 35-page report, the authors concluded that “It is possible that a DLT may find its way into the mainstream market, but should this happen, it is more likely to cause a gradual change in processes, rather than a revolution in the market.”
Also in April, the ECB published a 9-page report focusing entirely on DLT, stating that the Eurosystem “is closely following developments and considering all of the possible implications for its role as operator, catalyst and overseer.”
“DLT is a very new technology and it is therefore still difficult to predict exactly what kind of an impact it will have on the financial market infrastructure. However, it certainly presents a number of interesting possibilities that deserve further investigation.”
Not to be left out, the U.S. Federal Reserve system made its own opinion on blockchain regulation be known. In a speech at the Institute of International Finance Blockchain Roundtable in April, Lael Brainard, member of the Board of Governors of the Federal Reserve, urged regulators to be "prepared to make the necessary regulatory adjustments if their safety and integrity is proven and their potential benefits found to be in the public interest." He added that “we cannot afford to assume that change necessarily equals greater risk.”
Using blockchain technology, including bitcoin, for payments and settlement in financial markets is still the most common type of use case of the technology explored by financial institutions. As a group, they comprised the majority of the papers, and all of them for the first three years of reporting.
In May, the SWIFT Institute released an 80-page paper titled 'The Impact and Potential of Blockchain on the Securities Transaction Lifecycle'. It takes into account the post-trade processing cost in excess of $40 billion a year on securities clearing and settlement and other processes such as KYC and AML. The author concluded that "it appears that mutual distributed ledger technologies could save global securities markets many tens of billions of dollars per year."
“Honouring the full promise of mutual distributed ledgers will not come automatically, easily or cheaply. Agreeing the required investment will require engagement and commitment at board level across both the buy side and sell side of the industry and for regulators to play an active rather than passive role.[..]The return will then come from substantial improvements in operational efficiency that can be enjoyed for many years to come.”
- SWIFT Institute paper
In April, the company released a joint report with Accenture to investigate how DLTs could be used in financial services. In the paper, SWIFT and Accenture identified eight critical factors that need to be addressed for DLTs to be adopted industry-wide. They include strong governance, data control, regulatory compliance and scalability.
Just as you’d expect for those directly in bitcoin’s path, the use of blockchain technology in capital markets have specifically been explored heavily by financial institutions, clearing houses and exchanges.
In January, the Depository Trust & Clearing Corporation (DTCC) issued a report urging the industry to work together to realize the potential of DLT. “The industry has a once-in-a-generation opportunity to reimagine and modernize its infrastructure to resolve long-standing operational challenges,” stated Michael Bodson, DTCC President and CEO. The paper outlines limitations of the current financial market infrastructure as well as improvements, while suggesting that an industry-owned organization such as itself is well positioned to lead the implementation efforts.
In February, another post-trade financial services company, Euroclear, issued a separate report exploring the use of blockchain technology in capital markets. In their report, Euroclear urged global authorities such as ESMA to develop rules and regulations to deal with DLT in capital markets. However, like DTCC, Euroclear also suggested that a better way forward is for an industry-owned organization to take the leading role.
Nasdaq, always interested in the cutting edge of technology, has long been exploring the use of blockchain technology for financial markets as well as for proxy voting. In January, Nasdaq claimed its private market, Linq, was the first to issue securities over a blockchain.
The next month the exchange published a report offering its opinion on the European Union Capital Markets Union. Having explored the use of DLT itself, Nasdaq implied that this technology has the potential "in areas such as payments, trade finance, trading, clearing and settlement, physical property title transfers and more.”
Another interesting paper for bitcoin itself is the recent report from ARK investments strongly suggesting that bitcoin is not only a bona fide asset class, but that new asset class is ideal for hedging and diversification of investor portfolios.
ARK wasn’t the only one to make the suggestion, however. In March, Needham, an investment banking and asset management firm focusing solely on growth companies, initiated coverage of Barry Silbert’s Bitcoin Investment Trust (GBTC), with a buy recommendation and target price of $62. "We believe that the price of Bitcoin stands to benefit substantially from rising demand for its two main use cases as a “digital gold” and as an alternative payments channel," the firm wrote. Today GBTC shares are worth about $120 each, down from a high of $144.
In May, the U.S. Postal Service Office of Inspector General published a 26-page report on the possibilities of using blockchain technology for the U.S. Postal Service. The report outlined four different ways for this technology to be used to help improve efficiency and save money for the government agency, stating that “blockchain technology could impact the Postal Service’s business in several ways.”
“The Postal Service could improve its existing services by beginning to experiment with the financial applications of blockchain.[...] In the long-term, the Postal Service’s experimentation with blockchain technology in financial applications could naturally expand into other applications enabled by the technology.”
- U.S. Postal Service report
In a Tech Trends 2016 report, Deloitte examined blockchain as well as other disruptive technologies and their implications for Chief Information Officers (CIOs). The firm explored blockchain usage for ‘Democratised trust’ citing that maintaining trust is “increasingly digital – is expensive, time consuming, and in many cases inefficient.” Blockchain could have a profound impact on communications, transactions and contracts “in a way that ultimately transforms the underpinnings of business, government, and society,” the firm wrote.
“Some organisations are exploring how blockchain, the backbone behind bitcoin, might provide a viable alternative to the current procedural, organisational, and technological infrastructure required to create institutionalised trust.”
- Deloitte report
In their report on Israel as a blockchain hotspot, Deloitte also noted several startups in Tel Aviv that have based their businesses on non-financial blockchain uses, such as international shipping and supply chain replacement Wave, consumer protection firm BitRated, and internet messaging client GetGems.
Many reports from other firms highlight even more non-financial uses company by company, but so far no definitive paper has been published about non-financial uses specifically. Keep an eye on BNC's Industry Resource section, however, the rate at which these reports have been piling up is rapidly increasing, so it is only a matter of time until one does appear there.