Use of blockchain in finance to become widespread in five years, say asset managers, South China Morning Post

Use of blockchain in finance to become widespread in five years, say asset managers

Survey finds sixty five per cent of asset managers and owners expect the technology behind bitcoin to be widely adopted by investment firms

Alice Woodhouse UPDATED : Thursday, twenty two Sep 2016, Ten:51PM

About two thirds of asset managers and owners in Asia Pacific expect blockchain, the distributed ledger technology behind cryptocurrency bitcoin, to be widely adopted in the investment industry in the next five years, a survey by financial services hard State Street has found.

The survey of forty eight asset managers and forty two asset owners carried out in partnership with Oxford Economics found sixty five per cent of respondents expected to see the technology in use in the next five years. The greatest optimism came from Australia, where fifty per cent of respondents believe blockchain will significantly disrupt financial markets.

“You can look at blockchain as one technology that will entirely convert the banking industry as it is today, or you can think of it as something as part of an overall solution that’s going to make financial services better,” said Hu Liang, senior managing director of State Street’s Emerging Technologies Centre.

Liang said State Street is adopting blockchain-inspired technology that incorporates aspects of the technology behind bitcoin without using all of its capabilities, which will speed up the time it takes to develop and roll out products for financial services.

Essentially a distributed ledger, blockchain is a decentralised consensus-resilient network which appeals to financial institutions as its semitransparent ledger is one of the most secure systems built to date.

Blockchain has potential applications across a broad range of financial services, from settlement and clearing to asset assignment, transfer of assets, auditing and regulatory reporting, Liang said.

Asset managers and owners in Hong Kong were more bullish about the technology than their counterparts in other parts of Asia, with forty per cent expecting to see distributed ledger systems disrupting financial markets, versus thirty seven per cent for Singapore and twenty three per cent for Japan.

However, a lack of skill about blockchain remains a hurdle, survey respondents reported. Forty-three per cent of asset owners said they did not know enough about the technology and fifty per cent of asset managers said they needed more education.

State Street is developing its own blockchain-related products including enhanced custody and securities lending, capital lineage tracking and syndicated loan servicing, Liang said.

These products will be opened up to a selection of clients for testing within the next twelve months, but it will be a number of years before they are scaled up for broader use.

Professional services company Accenture said on Tuesday it had developed a means to edit data stored on the blockchain, undoing one of the major aspects of the technology as the way it stores records makes it almost unlikely to cheat.

Accenture said this development would permit users of permissioned blockchains, those ledger systems run by designated administrators, to undo human errors, accommodate regulatory requirements and resolve mischief while maintaining cryptographic elements.

Liang said this was an interesting concept, but making it possible to erase records on the blockchain potentially undermines one of the fundamental benefits of the system.

“I’m sure they have some uses for it, perhaps. But to me that is somewhat worrisome to be able to have that kind of eraseability,” he said.

State Street is a member of the R3 consortium of banks and insurers exploring the potential of blockchain, which also includes HSBC, AIA Group and Ping An.

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