Codename: BLOCKCHAIN (and the untapped opportunity awaiting startups)
Banks have earnestly started integrating inhouse risk-scoring analytics systems to support crypto-currency protocols as they test the Blockchain technology. That was always bound to happen. A lot of us predict the demise of Bitcoin 1.0. The proliferation of Blockchain as I wrote in Codename BITCOIN, was the most natural progression for cryptos and the underlying technology.
No one can now doubt that the Blockchain technology will fundamentally reduce costs and provide real-time service. However, will banks be tempted to explore centralization? This runs counter to the concept of Blockchain.
So the question everyone has is: Where are the regulators? They should be rushing to formulate workable and inclusive frameworks to address the high risks inherent in cryptos in a bid to speed up the proliferation of Blockchain. Because cryptos lack an “intrinsic value”, it forces prices to fluctuate wildly. This is often used as the argument against cryptos by governmental jurisdictions. The European Banking Federation recently finished a blueprint for digital banking and policy change which includes proposals with several recommendations to policymakers regarding Bitcoin and the Blockchain technology. The recommendations basically echoed what banking groups have to contend with:
- Build a comprehensive regulatory approach
- Make transactions subject to the same regulatory standards (AML – ATF)
- Public and private assessment of Blockchain technology
Untapped opportunity waiting for startups
Banks are starting to test the Blockchain technology because of the potential it has for offering “smart” contracts for lending, syndication, money transfers and other unforeseen services. What’s exciting about this impending proliferation of Blockchain is the opportunities that startups will get to partner up with banks. Banks as technology laggards are not equipped to undertake such a monumental task. What’s needed is a network effect because it’s unlikely that one company can benefit from it by itself without a network effect. That means vendors that are bringing in a broad number of participants and get everyone to use something should be at the forefront of testing as well.
Let’s get talking. What startups do you think will benefit the most from banks exploring Blockchain?