BETTER UNDERSTANDING THE BLOCKCHAIN POSSIBILITIES AND LIMITS OF AN INNOVATIVE TECHNOLOGY. There is hardly any other topic that is currently being discussed as intensely as blockchain technology, the infamous blockchain. But is this really a disruptive innovation that could fundamentally change the investment market?

The doubts are certainly justified. It is now possible to invest in bitcoin with eToro for example.

how does it work?

Blockchain is one of the main themes of current discussions on technological innovations in the banking and financial sector.

Blockchain and Bitcoin get more attention than FinTech

If you take a look at Google Trends and Etoro, you will find that the topic of Blockchain is attracting even more attention than that of FinTech. This is surprising because blockchain is a very particular topic in the FinTech trend. But on the other hand, more and more people are investing in bitcoin through eToro.

Development of global search queries on Google for the terms FinTech, Blockchain, and Bitcoin

However, interest in blockchain is outpaced (many times over) by interest in Bitcoin. This is less surprising, as the industry association Bitkom recently reported that more than a third of Europeans are aware of digital currency. Among 14-29-year-olds, one in two.

Number and direction of blockchain startups

Many FinTech start-ups are taking advantage of the high level of attention in the industry and trying to cash in on the blockchain trend with a variety of ideas and concepts. The volume of blockchain investments even surpassed that of Bitcoin.

For example, research firm Venture Scanner is currently watching over 1,200 FinTech startups and another 700 in the bitcoin industry alone. Of these, about 55 explicitly address blockchain innovations. Another overview shows nearly 400 start-ups worldwide, which are specifically interested in the topic of the marketing chain.

Particularly interesting: so far one of the indisputable tenets of classical bank management theory, namely that banking services are not patentable. Patenting the technology could have far-reaching consequences.

Public and private blockchains

The general public is mainly focused on public blockchains whose use is the main concern (e.g. Bitcoin or Ethereum). These assets are available on most trading platforms like eToro and are of great interest to traders. For private chain stores, (distributed ledger) technology is at the forefront.

In order to complete the distinguishing characteristics, it should be noted that the two types can be further differentiated in platforms and software. A well-known platform for private chain stores is for example Ripple.

The differences in security are particularly important. For example, transactions in public blockchains are anonymous and irreversible. Private blockchains, on the other hand, are entirely under the control of their operators.

Does Blockchain Mean Banking Disruption?

Many experts see blockchain technologies as a chance to revolutionize the trading of assets on the internet and make intermediaries such as banks superfluous. They see it as a solution for safe, transparent, verifiable and efficient recording of transactions or any digital interaction with an extremely low risk of failure.

But security and risk seem to be one thing, as recent Bitcoin crime reports show:

  • Theft of $50 million from a Bitcoin competitor: One or more attackers hijacked 3.6 million units of the cryptocurrency ether. At the time of the attack, this sum amounted to more than 50 million dollars.

Use blockchain technology to reduce costs

Looking back to industrial history, Henry Ford was able to cut the build time of a Ford T by 90% by introducing assembly line production. Three elements were decisive for this:

  1. Process standardization.
  2. Standardization of components.
  3. Resource synchronization.

The future belongs to private blockchains

Chaining blocks will not fundamentally change the relationship between banks and their customers, let alone drive banks out of the relationship with customers. In this regard, the disruptive nature of this technology is questionable.

However, banks will not pass up the opportunity to optimize costs presented to them. In this regard, blockchain will also play an important role for financial service providers in the future.

However, a number of challenges remain:

  • Blockchain technologies require changes in the core IT infrastructure of banks. They are risky and expensive.
  • Block chaining also requires regulatory adjustments. However, it was only recently that Bundesbank board member Andreas Dombret said in an interview on the bank’s blog that the technology is being studied intensively.

Overall, the use of blockchain technologies in financial services is still in its infancy. Banks, savings banks, and other financial service providers should take the opportunity not only to analyze the new technological challenges at stake but also to test them on the basis of selected application areas. This is the only way to quickly gain practical experience and concrete knowledge for future applications.

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