The Immense Financial Services Potential for Blockchain
Jul 7, 2016
The blockchain world divides fairly neatly into believer and non-believer camps, although the ranks of the latter have recently been in decline. As more technology experts take a look under the hood – particularly the experts connected to agile start-up firms aiming to leapfrog legacy processes – the notion of non-financial blockchain applications is building momentum.
However, this serves as an important reminder: the blockchain is not synonymous with Bitcoin. Simply put, the blockchain is a network-based system of record keeping linked across a large number of distributed ledgers. This technology has too often been viewed through a cryptocurrency lens. For better or worse, Bitcoin was the first highly visible application of blockchain technology, leaving a somewhat sullied reputation to overcome.
Yet, one only needs to follow the money to appreciate the excitement generated by blockchain as a disruptive technology framework. Many banks have begun to use blockchain to facilitate mock trades with each other, indicating a commitment to the technology. Granted, financial institutions (FIs) have expressed interest in new ideas in the past that didn’t stick. Having lived through this process a few times before, however, I firmly believe the distributed ledger has staying power. Unlike many cases where innovation is spurred by technology vendors who must build a business case to convince their clients of the need, FIs see the potential value of blockchain. I believe that along with health care and security, the financial services industry is positioned to be among blockchain’s greatest beneficiaries.
In its move from public to private (permissioned) networks, and its progression from cryptocurrency to functions like smart contracts and title deeds, blockchain can be seen as a progression through the same innovation iteration that was experienced with operating systems a generation ago. Once proprietary in nature, open systems gradually emerged, even as multiple, not-fully-compatible, versions of systems like Unix were created. Predictably, companies found new ways to innovate and differentiate as the barriers that were once imposed by proprietary systems were lowered.
Nonetheless, many FIs continue to approach blockchain from a compute and application perspective, which is the most suitable environment for blockchain implementations. Forking, pinning, transaction validation, and encryption have been done within the network layer for many years. As such, we believe that networks play a critical role in all blockchain implementations. The network is best suited to guarantee blockchain reliance, performance, and security. Indeed, the network is very likely the most efficient means of enabling most blockchain implementations.
Blockchain’s great promise can also be threatening to incumbents – again, by lowering barriers. For example, it may become the long-awaited means to integrate various access points and enable a single consolidated view of client activity across all financial services providers. Such a comprehensive view has been an industry Holy Grail for years, given the insight and value it creates for both clients and FIs. At the same time, however, access to such information levels the playing field for disruptors and competitors. As before, firms are certain to innovate to create new points of differentiation – the key is to stay a step ahead of the trend.
In whatever direction the blockchain environment heads, I believe that Juniper Networks is ideally positioned to support the financial services industry. Juniper is a pioneer of open source, multipurpose, scalable, and reliable networking technologies that feature common programmable operating switches and flexible, accessible silicon designs. We have the ability to leverage our custom silicon to provide inline rate end-to-end encryption and guaranteed delivery.
Juniper uses the network to break down siloes that keep organizations from fully leveraging the benefits of blockchain. Legacy structures have conditioned the thinking that storage, servers, etc. are separate entities. However, everything has to run over the network. Juniper has a unique ability to provide open, standards-driven automated workflows that can leverage the network to provide accessibility to compute applications. Our early adoption of innovative solutions (open platforms, open APIs, high-speed processing, etc.) is well documented. Therefore, we are equipped to accelerate our own blockchain adoption as needed, building it into the network experience of our clients.
For example, Juniper’s focus on Precision Timing Protocol (PTP to meet EU regulatory mandates) will also pay dividends, removing the latency from routing and switching that is virtually the only known way for blockchain to be compromised. Our PTP efforts also help ensure that all blockchain transactions are validated and routed in a non-reputable fashion.
Although “following the money” can sometimes serve as a defensive maneuver, it’s also an effective way to sort through the opportunities at hand. Not only does blockchain provide a great way to accelerate innovation within organizations, but harnessing the technology can offer major benefits to financial services firms.