With the growing interest in blockchain technology showing no signs of slowing down, much speculation has focused on the potential savings and benefits across alternative industries- but how much could the banks themselves benefit from the innovative technology?
Earlier this year, a report released by Santander indicated that savings to the tune of $20 billion a year could be made through the utilization of ‘distributed ledger’ technology. The focus of the banks’ attention appears to lie with blockchain technology, rather than the Bitcoin currency itself.
The systems currently used by the banking giants to keep track of vast account balances could be drastically improved by using elements of technology which has been used to create Bitcoin. The real power of blockchains may lie in their speed and the low costs associated with transmitting value using them.
Ripple Labs have renamed to Ripple, signaling the ‘launch’ of their products. The well-funded Ripple project has been running since 2012 and has recently introduced the InterLedger Protocol, which seeks to facilitate the integration of different blockchains. ILP functions as a sort of cryptographic escrow system, which will allow the movement of value between ledgers.
The ability to securely move value from blockchain to blockchain will be vital for banks should they wish to utilize their own independent blockchain-type ledgers, which can communicate effectively with alternative networks such as VISA and Ripple.
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Blockstream is approaching a similar issue through the concept of sidechains, which can be pegged to the main Bitcoin blockchain. The Blockstream approach accepts that the Bitcoin network is an incredibly successful peer-to-peer ecosystem which is difficult to replicate. The decentralized nature of Bitcoin is incredibly important, but the banks are very unlikely to place the same value on this vital element of cryptocurrency.
Ripple’s markedly different approach has created independent and centralized blockchains, which do not benefit from the same network of voluntary node operators. However, this important technology will inevitably be utilized by the banks in time and it is projects like Ripple that will more than likely appeal to them.
Banks Take Notice
Blockchain is undeniably an important technology, which may have significantly wider applications than simply finance. The sidechains envisioned by Blockstream, as well as other similar projects, point towards the development of an ‘Internet of Value’, which may track our transactions in everything from currency to digital and physical property.
Distributed systems are, by their very nature, incredibly secure and protected from interference. When keeping track of important possessions and accounts, it would be foolish for the banks to ignore the power of blockchain technology in the future.
It appears that the banking giants of the world are beginning to understand the real power of innovative cryptocurrency technologies. Bitcoin news sites regularly report on the latest speculation and declarations of interest from the banks towards blockchain technology. The staggering amounts of VC funding focused towards Bitcoin and blockchain enterprise has not gone unnoticed with banking executives.
Job listings have been posted by banks such as Société Générale, which is hunting for IT developers with specialisms in Bitcoin and blockchain. This surely indicates that in time we will see banks embrace blockchain technology to some degree, be it through an intermediary such as Ripple or perhaps even utilizing a Blockstream-style sidechain!