Blockchain Remains An Important Topic of Discussion At the World Economic Forum 2018 in Davos, Switzerland

Cryptocurrencies and the blockchain technology have garnered a lot of attention in the financial market, especially after the unprecedented bull run last year. Several financial institutions have been pouring their interest into cryptocurrencies and are developing new investment products around them.

However, on the other hand, there have been institutions who have been critical about cryptocurrencies basically because they are completely unregulated and also because of their extremely volatile nature. Recently, International Monetary Fund (IMF) asked countries to come together and decide unanimously on this matter.

At the ongoing World Economic Forum 2018 conducted in Davos, Switzerland, the discussion gets extended further. The central topic of discussion is the blockchain technology supporting digital currencies, and how we all should deal with it i.e. should we completely denounce it or join the blockchain revolution by investing in it and making it more robust and useful.

Head of emerging technology at Royal Bank of Scotland, Richard Crook, says “We are sitting down around this table trying to decide whose lunch we are going to eat. Because blockchain’s benefits come from decentralization there is little point replacing one technology with another without changing the business model.”

Blockchain technology is a decentralized distributed ledger which is not just limited to supporting cryptocurrencies but also allows users to store and share encrypted data which can be used for anything like storing medical records, land records, tracking logistics and much more.

Also, the technology being distributed in nature with all parties involved, it considerably reduces the chances of fraud and theft and ensures better security to one’s data. However, the inherent nature of blockchain technology i.e. ‘decentralization’ is a looming threat to many financial institutions. This is because it processes transactions directly between two individuals without involving intermediaries and third-parties like banks. Also, because of its functionality, the blockchain allows users to make instant payments at very low costs challenging the existing banking systems.

As a result of its decentralized behavior, many banks have remained critical about cryptocurrencies since the beginning. Banks argue that cryptocurrencies are the potent tools for illicit activities like terror funding, money laundering and tax evasion and as a result, the pose a potential threat to the global financial system.

Moreover, last year, the ICO markets very also quite heated up which managed to raise an overall $3.7 billion worth funds. ICOs or Initial Coin Offerings allows different startups and companies to raise capital by offering their own digital tokens in exchange for Bitcoins or other cryptos. However, the latest report released by Ernst & Young shows that ICOs have lost a whopping $400 million worth funds either by cheating investors through fraudulent schemes or by online phishing.

The major challenge which currently lies ahead in front of the big financial institutions is how can this market be regulated by simultaneously maintaining uniformity so that investors don’t lose their funds and become prey to nefarious online activities.

Benoit Legrand, chief innovation officer at Dutch bank ING says “We can’t deny that things are changing. The world will include cryptocurrencies in the way we work in the next 10 years. But it needs to be regulated. This is absolutely key.”