From Silicon Valley to Wall Street, technologists and investors alike are buzzing about the potential for the Blockchain to revolutionize almost everything. The technology—a distributed ledger of transactions broadcast across a wide network and validated using cryptography—was first born out of a need to create and track Bitcoin. But now it’s poised to move beyond its cryptocurrency roots and promises to redefine transactions and operations in a wide range of industries.
Blockchain beyond Bitcoin
According to a Goldman Sachs Research report, Blockchain has applications from trade settlement to voting to cataloguing ownership of works of art. The technology has the potential to eliminate the need for a middleman, which can lessen potential security concerns, and to speed up manual processes. This makes counterparty risk in transactions near instantaneous, allowing accurate, real-time feedback on exposure.
Jim Schneider, an analyst in Goldman Sachs Research, sees particular relevance for Blockchain in the U.S. financial services industry. The settlement and clearing of equities currently takes three days to complete, and during that time, financial institutions tie up a lot of their balance sheets and assume counterparty risk. “If Blockchain can be applied to reduce that transaction time from three days to just minutes, it could significantly reduce the amount of systematic risk and reduce the amount of cost in the process,” Schneider said.
Barriers to adoption
But as Schneider points out, there are challenges to Blockchain’s widespread adoption. As with any new technology, the hype is building with no real legislative or regulatory framework in place. “Blockchain has already attracted a great deal of scrutiny…any application will be closely vetted by regulators,” he says.
Scalability and speed are also concerns. The public Blockchain used for Bitcoin transactions can process between four and seven transactions per second, whereas high-volume credit card networks can process nearly 10,000 times faster.
“Despite these challenges, we think Blockchain has a tremendous potential to transform industries and reduce cost significantly for both companies and consumers,” Schneider added.
Blockchain is just the beginning
This article is part of Goldman Sachs Research’s “What If I Told You…” series, which explores emerging trends that are poised to fundamentally change how we live and work.
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