Using blockchain technology is already a primary goal for many financial institutions (FIs). These FIs are likely asking themselves, “How can we use blockchain in our business?” What they should be asking themselves, however, is “What are the problems we want to solve?” By approaching blockchain in this regard, FIs open themselves up to blockchain’s true potential—and its hurdles.
At this early stage, it seems blockchain’s greatest contributions to the financial industry will be around transparency and security. Blockchain lends security because it stores precious digital cargo in blocks that are digitally stamped and distributed across multiple sites. If a block is altered by a malicious node, it is immediately detected, and an unaltered version is retrieved from other, intact nodes.
With much potential, however, comes challenge. This too, is the case for blockchain. To truly see blockchain reach its potential, blockchain developers must overcome the following four challenges:
- Interoperability – Blockchain technology is likely to come on the scene in multiple formats. In fact, the technology is still largely conceptual without defined standards. This leaves the door open for dramatic evolution from its current state.
- Ownership – Even though blockchain is designed to be “open,” someone or something will have to at least develop the platform (in essence acting as the owner). Will that entity have garnered enough trust from its target user base to persuade those users to join in?
- A Complicated History – Most know blockchain technology because of its relationship with Bitcoin. Bitcoin operates in an ecosystem that is complex for many reasons: It is permissionless, running on an untrusted and unreliable network and operating in a highly distributed environment.
- Integration – Before any blockchain technology can achieve wide-scale adoption, it has to present a convincing (and simple) plan for integration that won’t compromise its integrity.