Four years before Bitcoin launched, the late Dr. Stephen Hawking wrote the handbook on how financial institutions should handle the challenges posed by cryptocurrencies.

“Intelligence is the ability to adapt to change,” he said. Okay, it was not a handbook, and clearly, Hawking was not talking about cryptocurrencies. However, it was terrific advice, nonetheless. When Blockchain launched, its intent was to break up the monopoly of the financial establishment. Today, companies within that same financial establishment are investing billions in researching blockchain’s potential and develop new blockchain-based systems and applications. While there’s a little fear and skepticism, there’s a lot more excitement and adaptation.

Some of the financial establishment’s skepticism is well-founded. Blockchain is certainly spawning some questionable new businesses, as well as a host of offerings with incredible potential. But they also know the technology offers them a lot of the solutions they need. Arguably their greatest immediate need is the ability to trade cryptocurrencies, and generally participate in the cross-border, open-source money movement, in a safe and compliant way. A BarclayHedge survey of hedge fund managers in September 2017 revealed that 24% of hedge funds either currently invest in cryptocurrency or plan to invest within the next six months. However, many hedge funds lack the IT infrastructure for trading cryptocurrencies.



But beyond the exchanges, blockchain technology has the potential to streamline transactions, improve compliance, reduce risk, decentralize tasks — and dramatically cut costs. In fact, some of the estimated savings quoted in reports are truly staggering. Santander estimates that blockchain-based apps could potentially cut costs by up to $20 billion a year by 2022. Meanwhile, an Accenture & McLagan report concludes that blockchain technology could slash costs by 70% on central finance reporting; 50% on business and central operations; 50% on compliance; and more than 30% across the middle and back offices.



There are many different tasks for which blockchain technology could lower costs. It could dramatically reduce the maintenance and replacement costs associated with aging IT infrastructure. Additionally, it could simplify and speed up the transfer of payments, particularly across international borders. It could improve the accuracy of trades and shorten the duration of the conciliation and settlement processes. Also, it could execute smart contracts securely, eliminating unnecessary legal transactions. It could simplify online identity management. Plus it could streamline verification and fraud analysis. Of course, it could aid regulatory compliance.



“Investment banks spend an estimated two-thirds of their IT budgets on legacy back-office infrastructure,” said David Treat, managing director of Accenture Financial Services and blockchain lead, in the Accenture & McLagan report. “Blockchain could lead banks to decommission much of that infrastructure and externalize key operational processes. It could completely change the cost dynamics in these organizations.”



So what’s holding back the institutions? For a start, replacing entire legacy systems at the enterprise level would be a massive project and the high cost would likely be prohibitive, particularly since most organizations run on mainframe systems. The notion of decentralizing trust would represent a major step, requiring the creation of vast and secure networks. Given that blockchain is still an emerging technology, there are obvious concerns around performance, scalability, security and the lack of regulation.



Some have suggested that blockchain technology might actually lead to more expensive transactions, given the number of network nodes required to complete the process. Meanwhile, other potential “hidden” costs include the high energy requirements of the network and the cost of lifetime data storage. In fact, a recent Forbes article criticized the Accenture estimates for failing to take into account these “exploding future costs.”



Nevertheless, most institutions are at the very least experimenting with ways to harness blockchain. More than 40 global banks are actively studying the technology via the R3 Distributed Ledger Group consortium. And although a few large global banks are funneling resources towards patenting their own blockchain-based systems, most of those that do run a blockchain system partnered with a FinTech company.



This month, our company, BCT, is excited to launch a cost-effective blockchain solution for hedge funds and other financial institutions, called The Blockchain Terminal.



The Terminal is a one-stop desktop interface that integrates all the tools and information needed to trade cryptocurrencies, with great security and compliance. Comprising two 38-inch curved screens, BCT offers an information feed, aggregating news, and data from cryptocurrency exchanges and 1,400 crypto currencies, plus ICO info and updates from 40,000 media outlets. It also provides advanced trading data analytics and charting tools for all strategies, and it offers an open app store for institutions.



Importantly, the Blockchain Terminal comes with proven, gold-standard compliance monitoring and audit trail technology, ComplianceGuard, that fulfills even the strictest hedge fund requirements. Powered exclusively by BCT utility tokens, the Terminal is currently being piloted at 20 hedge funds and will launch officially by the end of Q1.



There’s little doubt that blockchain technology holds the potential to transform the way financial institutions operate, beyond the crypto exchanges, resulting in significant potential cost-savings across numerous different departments and functions. As companies become increasingly comfortable with the new technology, the use of blockchain-based apps among the institutions is likely to continue to grow.