Blockchain Technology Already Disrupting Financial Industry, NJ Tech Council Speaker Says

 “The change you keep hearing about is real,” said keynote speaker Ron Quaranta, founder and chairman of the Wall Street Blockchain Alliance, to a packed conference room at the 2017 FinTech Summit sponsored by the NJ Tech Council.

He was speaking about how blockchain technologies are disrupting business practices in finance. “How we do what we do is changing,” he said. “How we do business; how we trade; how we ensure privacy; how we store, process and share information; and how we exchange value.”

“In the future, virtually every function in the world of financial services will be displaced, disintermediated and in some way decentralized,” he predicted.

Quaranta defined “blockchain” as a public ledger that records transactions without the need of a trusted central authority.

The argument that this technology is too young for consideration is rapidly losing credibility, said Quaranta, given that many financial services companies have been piloting programs based on this technology.

Financial services are just a start, he added. In the same way that the Internet is a powerful way to share and access information, the blockchain is a powerful way to share and access values.

 “Our technology has finally caught up with our desire to transact without the need to trust the other party and without an intermediary. Also, how we exchange value and how machines are exchanging value for us will become more efficient, cheaper and more effective.”

In many instances, incumbent financial institutions are driving blockchain efforts. Northern Trust (New York), for example, has successfully completed a pilot application of IBM’s Hyperledger Fabric. The project “did everything they hoped it would do,” Quaranta said.  “The project is working so well, that Northern Trust stated publicly that they now have fund management on the blockchain.”

Scaling issues might have to be addressed, he noted, but work is being done to address the scaling challenges via multiple initiatives all over the world.

Blockchains are penetrating how commerce happens, he said. A consortium of food companies including Walmart is using a blockchain to trace contaminated food back to its source. Also, “there is an organization right now called “Everledger” [London] tracking conflict diamonds,” Quaranta noted. He added that J.P. Morgan is spending time perfecting its blockchain platform for all functions requiring high-speed, high-throughput processing.

Quaranta then reviewed the public/private blockchain debate, which is now going on and probably will go on for a while: Institutions are not ready to publicly disclose all their transactions. In some cases, it may be illegal for them to do so.

He said that regulatory agencies are investigating how they, too, can become part of a blockchain network. “What will this do to the cost of regulatory compliance?” he asked rhetorically. “What if there is a future of reduced regulatory violations because regulators can see these things as they happen, proactively working to secure investor confidence?”

A major sticking point for regulators around the world is Initial Coin Offerings (ICO), a not-yet-officially regulated version of crowdfunding. According to Quaranta, China has clamped down on ICOs and all digital-currency initiatives.

 “Our perspective at the Board … is that this is simply a mistake. When you peel back the layers of all of the hype, you’ll realize that the most forward-thinking perspective around digitization of fiat currency [backed by a government] is actually happening in China. They are ahead of us in tokenizing their currency.”

Indeed, “we believe that crypto assets and ICOs are here to stay.” Quaranta predicted that ICOs will evolve into a legitimate funding practice for businesses.

How we think about privacy and personal data will change, he said. In response to the Equifax hack and other hacks, there has been growing interest in the use of a blockchain for the secure storage of personal data in a trustless decentralized manner, in which everyone will hold the keys only to his or her own data, outside the control of any large entity.

Unfortunately, what’s holding back the use of blockchains in financial services is a shocking ignorance about them, what they are and what they can do, he said. “It’s hard to reimagine how we can do what we do. It’s hard to imagine what the world looks like in a trustless environment.”

In response to an audience question, Quaranta said that fintech companies that have not yet explored blockchain technologies are slightly behind the curve, but they can catch up. However, he said, there is a lack of blockchain experts to help them accelerate their efforts.