Lastest news

The blockchain revolution

Jul 21, 2017
Deloitte’s David Dalton explains the concept and value of blockchain to the financial services sector and beyond.

What is blockchain in layman’s terms?

Blockchain technology is a peer-to-peer shared online ledger where transactions are recorded, validated, stored and accessible to anyone who is part of the computer network. All transactions are timestamped and stored in chronological order, providing users with a complete audit trail of the transactions on the blockchain. The combination of cryptography along with its decentralised structure makes it very difficult for any party to tamper with the data in comparison to a traditional database.

Recently, CEOs have been praising disruptive technology like blockchain – is this good for the industry?

It is normal currently for accountants to manage and maintain separate financial records. Alternatively, they could write their transactions directly into a shared repository, creating an interlocking system of accounting records. All entries would be distributed and encrypted on the immutable platform, making it practically impossible for an unauthorised party to access the secured data. Accountants could use this either as a back-up/shadow system or effectively monitor the decentralised database system themselves thereby replacing the existing bookkeeping system, saving time and shifting their focus to more complex accounting related activities.

How can/will organisations use blockchain?

Blockchain technology has huge potential to revolutionise the way in which we exchange and record value today. A blockchain makes sense when there is a need for a shared data source, multiple people writing to the data source, and the need for an absence of trust. In most instances, blockchain creates the opportunity to disintermediate trusted third parties. Popular areas in financial services include payments, regulatory reporting/compliance, trade finance and settlement to name but a few. There is the potential for organisations to come together and operate in industry utilities powered by a blockchain, where data is shared in a safe and permissioned way between parties.

How is blockchain important to the financial services sector?

Blockchain has the potential to replace a number of inefficient aspects of the financial services market. For example, cross-border payment is a lengthy and costly process due to the need to involve a number of financial intermediaries. Blockchain has the potential to act as a quicker, cheaper alternative by connecting parties directly to transact with each other on the platform. Many other areas may also see disruption, such as post-trade settlement, fund and financial instrument distribution and the client on-boarding process.

How will cryptocurrencies impact the industry?

Cryptocurrencies are an emerging asset class and are fast becoming a mainstream tradable asset. Given the infancy of the asset class, a number of issues remain associated with cryptocurrencies. Firstly, it is not a regulated market and liquidity has therefore proved to be a problem at times. Second, similar to how derivatives were difficult to value in recent times, how to value a cryptocurrency for your balance sheet is still an issue. There are a number of issues around governance and regulation which need to be addressed before cryptocurrencies become a widely used and supported asset class.

David Dalton is Consulting Partner at Deloitte and the firm's Financial Services Industry Leader in Ireland.