US Government Warns Of Blockchain Risks. Forecasts Massive Adoption Sooner Than Expected.
In its annual report this week, Financial Stability Oversight Council (FSOC), a US government organization, warned that blockchain technology and marketplace lending could present risks to financial stability.
FSOC suggested that risks associated with blockchain may not emerge until solutions are deployed at scale, because of participants' limited experience with the technology. If a large number of financial firms are involved when issues emerge, this could be a significant risk to financial stability. FSOC also said that some blockchain systems could be vulnerable to fraud, if a significant minority of participants colluded to defraud the rest.
FSOC also highlighted that financial firms using blockchain-based systems may operate over multiple regulatory jurisdictions or national boundaries. As a result, coordination between regulators would be required to identify and monitor associated risks.
However, Santander forecasts that by using blockchain technology, over $20 billion in costs can be saved annually by 2022. This is because it eradicates the need for using massive amounts of paperworks and other administrative costs. The technology is also gaining steam among finance firms because of its potential to streamline processes and increase efficiency.
That's because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that’s secure, permanent, anonymous, and easily accessible.
BI Intelligence report gave some key takeaways from the report:
Spending on capital markets applications of blockchain is expected to grow at a 52% compound annual growth rate (CAGR) through 2019, according to Aite Group, to reach $400 million that year.
Banks and major financial institutions are working both collaboratively and independently to develop blockchain tech. Over 50 major financial institutions are involved with collaborative blockchain startups, like R3 CEV or Chain. And many are investing in the technology on their own as well.
Putting blockchain to use for real-world transactions is likely not that far off. If working groups' tests are successful, firms could be using it to transact real value as early as the end of this year and we could see widespread industry application within the next few years.
Sources:
https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf
https://www.finextra.com/finextra-downloads/newsdocs/The%20Fintech%202%200%20Paper.PDF
http://www.businessinsider.com/intelligence/fintech-research-briefing-daily-newsletter-research
Love this line from Santander..."The technology is also gaining steam...." :-)
Massive adoption? I hope they're right :)
I can see companies using private blockchains for maintaining their inventory, etc., but who's going to trust a private blockchain when it comes to their money?