Understanding the potential of blockchain

While blockchain is still considered an emerging technology, it clearly has the potential to disrupt a wide variety of industries, including financial services. As blockchain evolves, there are a number of challenges to consider and address before it can reach its full potential.

Understanding blockchain and its value today

During a panel discussion on blockchain at RBC Investor & Treasury Services' (RBC I&TS) Investor Forum, an audience poll confirmed that the technology was unclear. Session moderator Kaushik Venkatadri, RBC’s Senior Director of the Blockchain Centre of Excellence, offered a brief explanation and described the key tenets of blockchain: it is democratic, consensus-driven and cryptographically secure. In addition, the records kept within blockchain are immutable and the entire system has built-in data transparency.

“The theme running between all of these is one of trust," he explained. “If you have a system with all of these components, you can trust that system."

Fellow panelist Kris Orlowski, Senior Advisor of Blockchain Technologies Consulting, explained how this trustworthy system is able to provide new capabilities today. He noted that the international remittance market, which sees USD 466 billion move to emerging markets annually, is inefficient in its current form. “Blockchain will facilitate transactions worldwide at a rapid pace," he added.

Expect some growing pains

As the technology grows from its limited capacity today to reach its full potential, regulators, legal professionals and technologists are challenged with a number of fundamental issues.

“Because blockchain is meant to be global, we need to try to determine, when you're setting up a blockchain network, what jurisdictions will apply," said panelist Carol Derk, a Partner at Borden Ladner Gervais LLP. Derk added that organizations can often get around jurisdiction concerns by following the highest international standards.

More pressing to Derk is the issue of smart contracts, which can guarantee an agreement without third-party enforcement, as contracts are tamper-proof and can be activated autonomously once certain conditions are met. “The fundamental legal question is whether a smart contract is a legal contract," she explained.

As the technology grows from its limited capacity today to reach its full potential, regulators, legal professionals and technologists are challenged with a number of fundamental issues

Furthermore, Derk says that the anonymity of blockchain users can make enforcement a challenge. “You don't know whom you're necessarily dealing with, and that can make standard legal rights that we take for granted in contracts difficult," she said.

Orlowski added that, at present, blockchain technologies continue to struggle with capacity issues. He explains that there is a limit to the number of transactions that can be processed at once, but Leide is confident such limitations will be overcome as the technology grows.

What a blockchain future has in store

Though panelists remained realistic of the challenges and limitations, all were optimistic about the technology's potential.

“I actually think that blockchain is going to revolutionize many industries, legal being one of them," said Derk. “The blockchain and bitcoin are just too relevant to be ignored," added Orlowski.

Orlowski believes that the sharing economy will eventually be disrupted by blockchain, as individuals can make peer-to-peer transactions without the need for intermediaries such as Uber and Airbnb. He is also confident that the blockchain will have a dramatic impact on how we share our personal data, even suggesting that Google and Facebook's advertising model may potentially face disruption as the technology matures. “Think about one little black box that stores your social insurance number, your identity, your interests, your resume, and only you will decide what you want to share in that box and with whom you want to share it, and for how long," he said.

Leide is similarly optimistic about blockchain's potential impact on the financial services industry, especially in regards to reconciliation. “I'm sure you have lots of people that are adding numbers, looking at spreadsheets, running transactions, making sure files match. But what happens if you no longer need to, because it's all guaranteed on the blockchain?" he asked.

The inevitability of blockchain

Though still in its infancy, blockchain has already begun providing new capabilities to early adopters and experts in the field remain optimistic about its disruptive potential. Though legal, technological and regulatory challenges persist, blockchain is evolving to solve them. For many who work closely with the technology, its integration into daily life is less a question of if, but when.