Not Bitcoin, Blockchain
If you’ve heard of Bitcoin, you’ve heard of blockchain. Bitcoin verifies transactions between its holders by using a shared ledger. Each transaction is recorded within a “block,” and once it’s validated by the network of accounts, it’s added to the ledger which forms a chain of blocks … hence, a blockchain.
Although Bitcoin launched in 2008, after running a search on AlphaSense, I found almost no mentions of blockchain or Bitcoin anywhere within company filings or press releases (barring a few exceptions, such as a patent application by JPM for a bitcoin-esque payment system in 2013), until 2015, when mentions of “blockchain” escalated (see chart).
One of the first articles from 2015 was published by the Financial Times, who suggested it had “become deeply fashionable to laud the potential applicability of the blockchain to all sorts of non-Bitcoin areas and some of this enthusiasm is, no doubt, overblown.” Two years later, blockchain appears to be as fashionable as it ever has been — but is the enthusiasm still overblown?
Using AlphaSense, I found references to blockchain in filings from every sector, but other than technology, the most prevalent sector was finance, and more specifically, banking. According to a press release from S&P, “Blockchain presents an opportunity for financial institutions to cut costs by streamlining back-office operations; to shorten clearing and settlement times; facilitate payments; and even generate new revenue streams.”
A recent IBM ($IBM) presentation claimed that 90% of banks were “piloting blockchain projects.”
Other examples I found include Barclays ($BCS), who claim to have “taken a leadership role in blockchain technology in the banking sector;” HSBC ($HSBC), who aim to make “blockchain technology a reality with regards to trade finance;” and Wells Fargo ($WFC), who said there is “a lot of development inside our Company looking at ways to leverage blockchain.”
Not Just Pork Shipping
Outside finance, there are some big names trying out blockchain technology. Dow Jones News reported that, “Wal-Mart Stores Inc. is preparing a pilot project in early 2017 to use blockchain to track a segment of its produce business in the U.S. along with its pork shipments in China,” as well as reporting that Maersk ($MAERSK-B) had launched a “joint venture with IBM to track containers through blockchain technology.”
In June 2016, Toyota ($TM) announced that it felt the technology, “could be used to track auto parts between countries and factories, as well as to enable connected cars to communicate with drivers’ personal devices and sensors on infrastructure along roads,” and that its finance arm, “had joined R3CEV.”
R3CEV – Isn’t That a Star Wars Character?
R3CEV LLC is a consortium of financial institutions working to provide blockchain technology — but they aren’t the only group doing so. Many companies are trying to get onboard the blockchain train. Just running a search in AlphaSense for blockchain within the internet technology (IT) space provides some interesting examples of firms working on the technology or providing services in the space.
IBM has the most references over the last two years (they are “betting and heavily investing in blockchain”), but WISeKey ($WIHN:SIX), SAP ($SAP), Virtusa Corporation ($VRTU), Cap Gemini ($CAP), Earthport ($EPO:London) and Accenture ($ACN) all rank highly on the AlphaSense relevancy score.
Possible Savings and Value
The benefits of blockchain include, improved security through better transparency and data integrity. But, it is the increased efficiency (enabling transactions to be handled faster and cheaper), that seems to be the main motivation for these companies.
A report by Accenture suggested the technology, “could reduce infrastructure costs for 8 of the world’s 10 largest investment banks by an average of 30 percent, translating to $8 billion to $12 billion in annual cost savings.” Some estimates go further — Ben Broadbent, Deputy Governor of the Bank of England, stated that “distributed ledgers could save $54 billion a year in clearing and settling securities.” IBM, albeit with a vested interest, estimates the blockchain market to be “$200B+ in FS & supply chain alone.”
Blockchain technology is still a nascent one, and barriers to adoption remain. No doubt regulatory, legal and security concerns will need to be ironed out, and there will be significant development and moving costs.
Dow Jones News has quoted Greenwich Associates as putting bank spend into blockchain at $1 Billion in 2016 alone. Because of those obstacles ahead and because activity is still in pilot or early stages, the enthusiasm is probably still overblown — but from what you’ve just read, if you’re a blockchain fan, there certainly are reasons to be cheerful.
1. JPMorgan files patent for Bitcoin-style payment system – Financial Times, 10 December 2013
2. Uphill battle for data sharing on Wall St – Financial Times, 2 January 2015
3. S&PGR Article Says Blockchain Can Alter The Financial System – Dow Jones News, 26 October 2016
4. IBM Investor Briefing 2017 on Industry Differentiation – Company Presentation, 7 March 2017
5. Form 6-k from Barclays PLC – Company Filing, 30 March 2017
6. HSBC Strategic Report 2016 – Company Circular, 31 December 2016
7. Wells Fargo Investor Day – Company Transcript, 24 May 2016
8. Today’s Top Supply Chain and Logistics News from WSJ – Dow Jones News, 20 December 2016
9. Maersk Confirms Tech Savvy Snabe As Board Chairman – Dow Jones News, 28 March 2017
10. Blockchain May Go Beyond Financial Transactions — Market Talk – Dow Jones News, 23 June 2016
11. Blockchain May Go Beyond Financial Transactions — Market Talk – Dow Jones News, 23 June 2016
12. International Business Machines Corp Investor Briefing 2017 – Company Transcript, 7 March 2017
13. Blockchain Technology Could Reduce Investment Banks’ Infrastructure Costs by 30 Percent, According to Accenture Report – Press Release, 17 January 2017
14. European FinTech – What doesn’t kill you makes you stronger – KBW Research, 4 April 2016
15. IBM Investor Briefing 2017 on Industry Differentiation – Company Presentation, 7 March 2017