Financial Services: The Blockchain Revolution is just beginning
Blockchain and its power for innovation is inevitable. It seems every day a financial services company announces a pilot experiment with blockchain technology.
November 6, 2017
Blockchain and its power for innovation is inevitable. It seems every day a financial services company announces a pilot experiment with blockchain technology. Per a survey from Cognizant, over the past two years, banks have come to accept blockchain technology as a useful—and potentially transformative—innovation with the power to enhance or create new services. According to Forbes, blockchain has the potential to transform finance and banking in the areas of fraud reduction, KYC, smart contracts, trade finance, Payments and trading platforms.
As with any new technology, banks are approaching the blockchain with equal parts interest and caution. The financial services sector has a unique set of challenges when it comes to implementing any technology. It’s a highly-regulated environment that requires strict guarantees on data integrity, uptime, and low latency. And while the industry isn’t afraid to spend money on technology, the solution should still be cost effective to operate.
VMware Works on a Blockchain Prototype for Enterprises
At VMware, we’ve been doing advanced research with blockchain technology to understand it and to see how we could improve it for real world use cases beyond cryptocurrencies.
The original technology for blockchain relied on proof-of-work (POW) consensus which proves to be extremely expensive in energy costs to operate at scale. POW is also extremely slow to reach finality and due to data forks data could end up getting lost or taking even longer to reach finality. For these reasons and more, a lot of the innovators in the blockchain space have moved towards byzantine fault tolerant (BFT) consensus engines. BFT has its own challenges. While it’s lower cost in energy the BFT engines that got created from vendors had scaling limits due to the “chattiness” in the peer-to-peer communications. And if faults were introduced then the messages sent really took a toll on total throughput of the system.
Our goal was to tackle the issues of scale, high-throughput fault tolerance, and advanced security at the consensus layer by creating the first scalable byzantine fault tolerant (SBFT) consensus engine. As more nodes are added the throughput continues to scale. As faults are introduced (crashes or byzantine failures) the system continues to have high throughput. Because it’s a byzantine agreement environment the engine has an extremely fast time to finality.
Our work in the blockchain space didn’t stop at the consensus layer. We’ve made advancements across the blockchain stack including at the ledger and smart contracts layer. Better security, advanced encryption, portability of smart contracts between consensus environments, and an all new way to look at blockchain management are just some of the advancements that we’ve made. Built on constant innovation we’re committed to solving the hard problems so financial institutions can benefit from eventually what will be a game-changing technology.
How blockchain will revolutionize the financial services industry remains to be seen. But it’s clear banks can’t ignore it.
As Alex Tapscott and Don Tapscott, authors of “‘Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World” put it:
“The question is who in the financial services industry will lead this revolution in a positive way? Throughout history, leaders of old paradigms have shown difficulty embracing the new. Why didn’t AT&T launch Skype, or Visa create PayPal? CNN could have built Twitter, as it is all about the sound bite, no? General Motors or Hertz could have launched Uber. Marriott could have launched Airbnb. As with major paradigm shifts that preceded it, blockchain will create winners and losers. Though opportunities abound, the risks of disruption and dislocation must not be ignored. Still, we are hopeful today’s financial services leaders will not become tomorrow’s losers. After all, too much is at stake.”
If you’re curious to learn more about how blockchains work, I recommend that you watch this engaging two-minute video.
Manasee Dash, Global Lead – Financial Services Industry Product Marketing, VMware