Six payments experts give verdict on potential of blockchain - EPC
Is blockchain a short-lived illusion or a real game-changer? asks the latest newsletter from the European Payments Council (EPC).
A lot of financial power and expertise is being invested in developing blockchain technology and harnessing uses for distributed ledgers for the payments and banking industry. The EPC gathered together six experts from different sectors (a central bank, a commercial/transaction bank, fintech companies, a consultancy and a payments processing company) to discuss whether and how blockchain could become a reality.
Here are some of the key quotes and points taken from the EPC's write-up of the live debate between six payments industry experts.
Six reasons why blockchain is a game-changer
- the increased automation and reduction of manual processes enabled by blockchain reduces costs;
- blockchain has the potential to create new protocols and norms, in coordination with regulators;
- blockchain could bypass existing marketplaces while leveraging novel distribution channels;
- the most promising use is contracts recording;
- without cooperation among PSPs, there cannot be interoperable blockchains, and they cannot be used on a large scale. PSPs must therefore collaborate to progress on blockchain, in a manner that still needs to be defined;
- blockchain could offer central banks the possibility of monitoring money flows in real time, controlling the transactions more accurately, and acting in real time.
Quotes on blockchain and distributed ledger
- "Technologies like blockchain give the impression that payments are faster. In this perspective, and as everybody is trying to improve payments, blockchain is already a game changer” - Michael Maier, Fidor Bank
- “Blockchain protects your data and maximises security. Blockchain can therefore validate transactions and proof-of-ownership, while enhancing security by reducing reliance on a central ledger.” - Marcel Roelants, Bitpay
- “With blockchain, as everyone has the complete copy of the ledger in the network, a hacker would have to hack 51 percent of the chain to change transaction entries” - Kaj Burchardi, BCG
- "Blockchain has a huge potential. It could have a significant transformative effect in situations where complex information streams come together – such as in the financial sector (trade finance and securities, for instance). Anywhere in which there are complicated exchanges, numerous information flows, a large number of parties involved and a lack of trust amongst those parties, it can potentially simplify the incumbent business model, reduce costs and speed up performance.” - Mark Buitenhek, ING
- “Blockchain is currently a solution looking for a problem. Payments are also much more than just a ‘ledger’, thus the hope of sweeping away the whole payment system with a cryptographic algorithm does seem a bit optimistic. It should also be noted that distributed, safe, scalable, trusted solutions to ledgers (aka distributed databases) have been around for a long while. Blockchain still has to prove these attributes before a critical infrastructure like payments should be built on it.” - Michael Salmony, Equens
- “Though blockchain is a very innovative solution, some of its supposed advantages, such as disintermediation, cost reduction, and the fact that trust is no longer needed, are, at best, inexact.” - Carlos Conesa, Banco de España
- “How will we manage privacy and ensure transparency at the same time?” - Marc Buitenhek, ING
How blockchain works
The EPC's infographic below shows how blockchain technology works.
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I have to admit that I most agree with a comment from Michael Salmony: “Blockchain is currently a solution looking for a problem.” Or to bring it even more to the point: Blockchain is solving a problem that nobody has.
Just to be clear, this refers to simple payments. There might be other or special areas, where the additional information / functionality blockchain adds to the process are relevant. In the payments space this could be CLS. However, there is probably more use for this technology in the clearing and settlement of securities.
Last comment: The EPC graph is making the same mistake that many in the market currently make, by mixing up Bitcoin and Blockchain. Blockchain is a process used in the bitcoin process, but it is only one component. E.g. the miners are not needed for blockchain, but they are needed for the bitcoin payments process.