Blockchain in action
Blockchain has indeed been a slow starter in the banking sector. Although used by industry giants such as IBM and Maersk to trace coffee supply chains and enable information-sharing and collaboration across the shipping supply chain ecosystem, banks have understandably been more cautious in their use of this technology.
But things are starting to change.
Efi Pylarinou, an independent FinTech/Blockchain adviser says that for blockchain, wallet adoption, where people and companies start to hold wallets with digital assets, will be the story of 2021.
“The Chinese will clearly go to market with a Central Bank Digital Currency (CBDC) and this will in turn create increased impetus for other central banks to do the same,” she says.
Regulatory oversight
Indeed in October 2020, a group of seven central banks (Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank), together with the Bank for International Settlements (BIS), published a report identifying the foundational principles necessary for any publicly available CBDCs to help central banks meet their public policy objectives.
“Regulatory certainty will help to push this along and of course cultural change with regard to the normalisation of digital assets will also help. But this takes time,” Pylarinou says.
Within retail another example is Figure Technologies, a blockchain-based start-up providing loans against mortgage equity. It recently applied to the US Office of the Comptroller of the Currency for a bank charter. It has originated more than US$1bn of home equity lines of credit since launching in 2018 and is planning to pilot a small-dollar instalment-loan product in January. “This is a cost and efficiency play in addition to providing transparency,” says Pylarinou.
Facilitating financial inclusion and security
Financial inclusion is another area where blockchain is already having an impact.
Indeed, using blockchain as a decentralised infrastructure that is private, secure, financially inclusive and consumer controlled can make a difference to the way that global identity and credit is handled.
“There are lots of projects that are at early stage where privacy and security issues are being tackled. Using blockchain for micropayments where it provides data transparency and security around digital identity is a means to get credit scores and loans securely. It is a strong existing use case,” says Pylarinou.
Bloom is one example of this. It is a blockchain solution for secure identity and credit scoring. It gives consumers ownership over their identity and financial data because it decentralises the way that information is shared between untrusted or microparties. In effect, this reduces the risk of identity theft and also helps with costs when it comes to onboarding new customers and carrying out identity checks around that.
Agriledger is another which provides security and authentication for participants in the agricultural supply chain. In particular, the blockchain ledger technology provides traceability so that tracking and recalling specific contaminated products throughout the supply chain is possible; each item can be traced from seed to consumer.
Blockchain is indeed starting to make slow but steady strides into the realm of the normal and every day. But as Pylarinou points out, it is not just cultural change and regulatory certainty that is required. “The share of investment that the blockchain sector is able to attract compared with other new technologies will be key.”