Yanouk Poirier and Michael Zinn of Penrhyn International’s TMT practice group explain how the application of blockchain technology has the potential to disrupt business models across many industries.
Technology and talent
In this rapidly evolving and innovative environment, it is vital for companies in the financial sector to review their business models. Trust and transparency will be critical to this. Finding the right people to lead businesses through this period of transformation and harness the potential of fintech to drive growth and innovation are hot topics in the sector.
In particular, the potential application of blockchain technology is creating a huge buzz across the financial services community, as well as in a range of other sectors. Originally developed through the creation of the first digital cryptocurrency known as bitcoin, new uses for the technology are being discovered in a variety of other industries such as law and real estate.
Defining blockchain technology?
There is growing awareness of the potentially transformative power of the blockchain, a digital database that stores, manages and transmits a growing list of records known as blocks. Each block contains a timestamp and is linked to a previous block. A blockchain is usually managed by a peer-to-peer network, which follows a protocol for authorising new blocks. Accessible and easily distributed, a blockchain is cryptographically secure and impervious to modification and corruption. It serves as a historical record for all transactions, providing proof of who has owned what at any time, from the genesis block to the latest block, hence the name.
The blockchain is usually thought of as a secure repository of common knowledge. BlockchainFrance, for example, describes it as a “very large notebook, which everyone can read freely, at no cost, on which everyone can write, which is impossible to erase and indestructible”.
As explained in our Q&A with Gilbert Verdian in this report, over the past two years blockchain technology has attracted huge investment and experimentation around the world and across a diverse range of sectors.
Applications being explored include tracking the ownership of cars and property, updating medical records and use in cloud computing. This technology has the potential to change the way that every sector in the world economy does business and the interactions between customers, vendors and employees. Many current business models will need to be re-evaluated to prepare for this disruption and for the inevitable eruption of new businesses created by visionaries and entrepreneurs.
Blockchain technology is set to create new opportunities and reshape business models in a similar way that social media and technology have transformed and disrupted industries and changed the way we interact with the world by bringing us smartphones and companies like Amazon, Facebook and Google.
The financial services industry’s particular interest in blockchain technology lies in its potential to improve the efficiency and security of transactions, simplify compliance and ensure privacy and anonymity. For example, it will allow ‘smart contracts’ to be created algorithmically.
While blockchain technology may not automatically or directly make existing companies more money, the ability to immediately and securely transfer or exchange funds creates opportunities for others to create businesses that may not have been possible previously because of limitations and time lags built into legacy systems.