A new report from post-trade services firm Euroclear on distributed ledger technology details various aspects of the blockchain and its innovative technology. It goes without saying distributed ledgers can be useful to various aspects of life, but there are certain hurdles to overcome before this can become a reality. In the end, it all comes down to finding a starting point for companies looking to explore the value offered by blockchain technology.
6 Hurdles to Blockchain Adoption
Despite the overall promise of blockchain technology, there are multiple hurdles to overcome before this innovation is adopted by the mainstream population. First of all, there is the topic of how scalable this technology is. Bitcoin users are well aware of how scalability issues can put a strain on development.
Secondly, and perhaps even more important is determining how the blockchain fits in with existing regulation and legislation. Rather than taking the approach of deploying technology before thinking about legislative measures, blockchain technology will need to receive the explicit blessingfrom regulators ahead of time. An excerpt from the report reads:
A considerable number of aspects of law will also need to be reinterpreted or changed through primary legislation. These issues include the legal definition of the finality of settlement which presupposes existing market processes and central data sources held at the CSD. Similarly there currently exist geographic territorial requirements concerning where data is physically maintained as golden source, a concept that does not fit with copies of the ledger being distributed to nodes on a global basis.
One of the main issues digital currencies are confronted with is their inability to hold a steady value. While fiat currencies are not all that stable either, the report mentions how blockchain technology could be used to digitize cash in the form of tradeable assets. Said assets would then be backed by risk-free cash holding, or segregated bank accounts.
Moreover, individual agreements will have to come to fruition, such as a decision on keeping an open blockchain or creating a private and permission-based alternative. Interoperability between private networks – such as banks and other financial institutions – will need to be taken into account, and someone will have to manage all of these blockchain protocols.
At the same time, there are the risks associated with operating a blockchain. The big question is whether companies will go all-in with the distributed ledger technology, or use it to run a parallel infrastructure until further research and development have been conducted. Minimizing these operational risks is one of the top priorities according to the report.
Last but not last, there is the topic of how anonymity works in conjunction with the blockchain. Capital markets require a certain level of anonymity, and cryptography provides the necessary tools to protect user information. But how will these digital identities be linked to real world identities? KYC assessment is one possible solution, although identity management independently of data validation could prove to be a worthy alternative idea.
Plenty of Advantages Make It Worthwhile
Transitioning society from where central authorities play a key role to an ecosystem where decentralization takes center stage will pose certain challenges. The biggest hurdle to overcome is the mental barrier, as people are so used to central authorities being in control. That being said, the Euroclear report mentions how some benefits can not be achieved through existing technological means.
“A broad range of innovators are creating solutions using blockchain technology. The most prevalent are active in the ecosystem of cryptocurrencies (and associated tools such as wallets),” the report reads, adding:
These essentially offer a form of retail payments. A range of applications across financial services are being considered, particularly relating to wholesale payments/correspondent banking, trade finance and other forms of transaction banking.
Reducing duplication of records and removing the growing pressure on central authorities are one of the benefits only distributed ledger technology can offer. Additionally, there would be no central point of failure as overarching authorities would be replaced by counterparties. Plus, all of the entries made on the blockchain are irrevocable, reducing the risk of manipulation to all but zero.
Blockchain’s integration into mainstream society will require collaboration on multiple levels. Distributed ledger technology revolves around achieving consensus, and all parties involved will need to be on the same wavelength. The report expects more consortia to get together in the future, as they study the implications of blockchain technology.
What are your thoughts on the findings in this report? How will the blockchain integrate into our everyday lives? Let us know in the comments below!
Source: Automated Trader
Images courtesy of Shutterstock
Purchase Bitcoin without visiting a cryptocurrency exchange. Buy BTC and BCH here.