Article By David Drake, Founder and Chairman of LDJ Capital. Full bio at the bottom
Institutions across sectors seem to agree that blockchain is an innovative technology that, undoubtedly, requires consideration as a future investment. As such, innovative projects are being built on blockchain technology to address different needs.
BlockVest is one such project. It uses virtual identity to digitize assets, making it easy for investors to manage their digital asset portfolios. On the other hand, URAllowance is changing the way parents interact with their children while SportsFix is revolutionizing the way people access and share sports content.
However, questions are emerging on the ability of blockchain to scale commercially. In the financial sector, the Central Banks of Russia and the Netherlands have raised concerns on the ability of blockchain technology to process large amounts of transactions in a fully secure way, the main challenge that hinders its full adoption.
Western Union, the money transfer giant that has been testing Ripple’s blockchain technology over the last six months claims that it has not registered reduced costs or faster speeds. The financial institution attributes this to high implementation cost.
This explains why some financial institutions are opting to cling onto traditional systems and highlights the major challenges that the blockchain has to overcome for mainstream adoption to happen.
Profit Loss Jitters
Financial institutions are wary of shifting from centralized to decentralized money transfer systems because it would mean a decrease in their profit margins. They are also concerned about challenges involved in updating those systems and the cost of transferring international payments to blockchain-based systems.
But with so much research and development on blockchain going on, these challenges might not necessarily hinder its adoption according to Alex Karasulu, CTO and founder of Optdyn.
He says, "These dynamics from the established behemoths will further propel the adoption of blockchain technologies in the financial sector rather than inhibit them. The tipping point has passed. Heavy investment in blockchain research and development by institutional giants, the cornerstones of the financial sector, clearly show this to be the case. At this point, resistance is not only futile, it actually contributes to adoption."
On his part, Bank52 CEO and co-founder, Thomas Labenbacher terms blockchain adoption as inevitable. In his view, adoption of this technology will be similar to the growth witnessed on mobile phones, particularly smartphones that today allow functions which just ten years ago would have been unthinkable.
He says, “Right now the cost benefits to the traditional banks may not be very significant, but you also have to look at the model being applied. They are still working to an old banking model of centralization which is out of step with the way business is done now, so of course they fail to see the full potential, and the scope of the change."
He further adds that, "The B52 offering takes a radically different approach, and leverages the technologies effectively, as opposed to trying to fit them into outmoded concepts of what banking is.”
Thomas Labenbacher was co-founder of the Fidor Bank Group entities, is Partner in Life.SREDA Venture Capital Blockchain Fund, and former Retail Director of Western Union Bank. He is a believer in digitization and is a revolutionary in transforming traditional banking into digital/crypto banking. Thomas has been named a Top 30 Fintech Influencer.
The Payoff Process
The research and development work that is currently ongoing in the blockchain space is expected to address the challenges that are currently hindering full adoption according to Juan Imaz, founder of Profede.
He says, "The future of blockchain advancing in the financial industry is clear, but before it goes mainstream R&D still needs time to advance the blockchain technology. The financial sector is only one industry of many that is going to see big changes in the near future brought on from the development and knowledge of blockchain technology”.
According to Jerry Floros, CEO & founder of MoneyDrome Edge, blockchain technology will go through several development cycles to get polished, just like other technologies that came before it.
"Cryptos and blockchain will simply go through the same adoption and continuous improvement cycle as computers and the internet did back in the nascent days of computer technology and the world-wide-web,” he notes.
Though it will take time before banks can reap real benefits, the payoff they will realize from blockchain will be high.
“Not only do banks benefit from faster transactions, reduced cost, effective cross-border payments but also improved security, higher data quality and ultimately to create their own digital currencies," Imaz adds,
It is highly likely that financial institutions will begin to enjoy the benefits of integrating blockchain into their systems in a couple of years.
Floros further adds that, “In the next 2-3 years, the reduction of transaction costs coupled with transparency and trust will outweigh the current concerns central banks and financial market participants are voicing as drawbacks of these new but advanced technologies."
David Drake is Founder and Chairman of LDJ Capital, a multi-family office which deals in various funds worldwide with over $1.5 trillion in assets, and maintains over 50+ global directors and family office partners.
More recently, Mr. Drake is viewed as a leader in cryptocurrency. Mr. Drake saw the value of digital assets when everyone was avoiding it. It all started in 2011 when Mr. Drake collaborated on the JOBS Act to create new laws underlying all fundraising in the U.S. for all ICOs. His crypto hedge funds hold crypto, ICOs, and FinTech equity as seed investments to help new coin to be made via ICOs. His company also offers bridge financing to seed upcoming ICO’s.
Mr. Drake was born in Sweden and is fluent in six languages. He holds an MBA in Finance and an MA in International Law and Economics from George Washington University in DC where he was awarded the Wallenberg Scholarship for academic merit.