28. Usefulness for Data Management, such as the Cost of Index Reproduction

To attract the general public blockchain must surmount several major challenges, such as the user experience that is sometimes complicated when buying or handling bitcoins, but the key challenge is likely to be the confidence to be gained from potential users.

Besides that the study predicts that those who come through the best will be those who have succeeded in creating a very important trust capital and capitalize on it. The study relied on the historical information of 8 of the 10 largest investment banks in the world and sought to figure the type of consequence of using the blockchain on costs. The Accenture concluded that this technology would accomplish about 30% savings in operational costs through streamlining and reducing certain functions.

Blockchain platform is the one that will have to demonstrated extreme robustness to date, that has never been hacked since its initiation. It does not necessarily need to undergo the bitcoin, especially because there are other cryptocurrencies. The taken business of bitcoins could be explained by the fact that they are sites hosting bitcoin that have been copied, but not the blockchain platform as such.

This is good news for investment banks that are more and more looking to reduce their costs to better value their advice and increase their returns to the commercial banks. In addition to the use of bank support purpose, blockchain could also be used for data management, such as the cost of index reproduction, thus increasing data quality and lowering transaction costs. The most important feature of this platform could simply be explained to the potential customer what it would gain by using the service, without the need to qualify the details of the technology used.

For this rational motive, many banks have invested in this new technology since 2014 announced that they will work together on a blockchain application in international trading. Similarly, the Wall Street clearing house DTCC also published a report suggesting that their project will use blockchain in the clearing process. But this technique, which relies in particular on the encryption of data, must be clearly understood by the banks but also by the regulators, the latter being still in the observation phase.

According to the announcement of DTCC, without going so far as to predict the end of banks, the idea that a certain number of banking functions may disappear in the near future for the benefit of actors using the blockchain is a possible upcoming, but everything will depend on the use proceedings, since the transfer of money abroad seems very promising, for example.

It highlights in particular “the very low intermediation costs of services based on the bitcoin, compared to bank charges”. However, due to the powerful regulatory barriers, particularly on credit activities at the heart of the banking business, it predicts, above all, the development of cryptocurrencies in countries where money is unwell controlled and where the cryptocurrencies can have a function of safe haven. More generally, in the short and medium term, cryptocurrencies and blockchain are of particular interest to developing countries and gropus of people that do not use banking services.

It is also necessary to add that assorted trends come together at the same time and call for a redefinition of the role of banks. First of all, the crisis of lasting confidence inactive by crises and various cases which correspond to a certain ideological antagonism of the original community of bitcoin confronted financial institutions. After that, the technological world and the growing number of startup in the financial sector are positioned on the financial market, is bursting.

Under this polymorphic pressure that is constantly gaining in resources and visibility, traditional financial players are involuntary to change their practices. Projects based on blockchain, that are spreading all over the markets of developed countries, are a of a major trend that is quickly changing automatically by conventional actors, who sometimes struggle to adapt.

For their part, the banks do not remain in remission in any case, and try to turn the threat into an opportunity. The method adopted is generally the same nd consists of the incentive for the suitable technology to adapt it within actual systems, by developing actual private or partially private blockchains, or by subordinate with startups of the blockchain ecosystem. This manner of operation describes quite asymptomatic the state of mind of the banks, forced under the threat of cooperating, but also to scientific research more or less indiscreetly internally in order not to be surpassed by technology.

In order to continue control over their systems, experiments are accumulated around private blockchains, where only a limited number of players can record transactions or have the registry. Public blockchains are more complex to use for banks that do not want to lose control of their content and must follow with regulations such as Know Your Client (KYC), which is not compatible with the character of transactions on a public blockchain, where the privacy of a customer is one of the key principles.

Regarding the situation within the private blockchain, for example, where the connections would be concentrated in a few selected associations or even within the different sections of the same bank, the attraction of the blockchain for the bank is simply cutback in costs. According to a 2015 Santander report, the use of blockchain could save banks 15 to 20 billion dollars a year by 2022, thanks to a reduction in “infrastructure costs related to international payments, trading and compliance”.

The blockchain could for example modify them to administer with clearing and clearing houses, which are complex, concentrated, and which can take two and a half days to guarantee complete clearing. At the same time blockchain transactions would be more reliable and quicker, with the lower transactional costs at the same time.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018


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