Early Blockchain Adopters Kicking Tires
While skeptics question how long it will take for emerging blockchain technology to make a dent in the financial technology market, high-profile backers of the decentralized secure transaction platform claim it is poised to "rewire" financial markets.
Among the promoters is IBM (NYSE: IBM), which argues in a recent report that a group of early adopters are driving blockchain technology designed to allow competitors to share digital ledgers across computer networks.
As evidence of the embrace of blockchain technology, IBM announced a partnership this week with Tokyo-based SBI Securities to apply blockchain technology to its bond trading operations. The trial will use the Hyperledger Fabric launched late last year by the Linux Foundation as a cross-industry open standard for distributed ledgers.
IBM said Friday (Oct. 21) the trial with SBI will among things test: the ability to register bonds through the reimbursement stage; the sharing of databases to boost automation; infrastructure sharing; and evaluating blockchain technology for securities operations.
"This test aims to scrutinize barriers or complexity for practical use, develop a plan for deployment, and accumulate knowledge through applying blockchain technology to our products," Hiroyuki Ogawa and SBI Securities executive, explained in a statement.
IBM Japan said it would support the trial via a blockchain suite on its Bluemix cloud application development platform. The company has been expanding its blockchain consulting services as the hyperledger ecosystem expands. For example, IBM, Intel Corp. (NASDAQ: INTC), digital currency and financial consulting firms are scheduled to pitch their blockchain services next week at a financial technology conference. Intel will present details of an embedded "smart blockchain wallet."
According to IBM's blockchain study, early applications of the technology cited by "trailblazers" include equity and debt issuance, clearing and settlements along with "wholesale payments." Pilot programs testing the viability of blockchain technology for those applications "is one indication that the financial markets industry may have been attracted first to those activities that may deliver significant business value whilst not subject to great regulatory complexity," IBM noted.
The company claims a sharp increase in blockchain pilot programs over the last two years as early adopters explore the utility of distributed ledgers for unregulated areas like identity authentication and customer service, settlements and collateral management.
Along with working with regulators and standards groups like the Linux Foundation, the IBM report noted that financial markets such as the tech-heavy Nasdaq have begun executing trades on blockchain platforms. Meanwhile, the Depository Trust and Clearing Corp. has initiated a pilot program with banks on credit swaps.
While blockchain technology remains in its formative stages, IBM said 14 percent of financial institutions in its study, mostly in capital markets, said they would scale their blockchain deployments in 2017.
For now, the current obstacles to blockchain deployments include immature technology, lack of skills and doubts about return on the investment, IBM said.