Blockchain: turning the financial world on its head
Blockchain is the next big thing. ABN AMRO is one of the banks that is investing time, money and energy in this innovative technology. We are reassessing all parts of the business and investigating how we can improve them using blockchain. To do this we are drawing on the know-how and experts that we have in-house, as well as working with other banks, partners and blockchain companies. Together, we are discovering what impact blockchain can have on the financial world.
From online banking to blockchain
Bitcoin was the first virtual currency to make use of blockchain technology, in 2009. It quickly transpired that the technology behind bitcoin could really shake up the financial sector. In fact, blockchain technology has the potential to completely reinvent the global system of transactions, if not the entire financial system.
The impact of blockchain on our lives could be as great as the changes brought by the Internet. The Internet has changed every aspect of our lives, including how we do our banking. However, it has been a gradual process, in which we have progressively adapted the way we work as the technology has developed. The impact of blockchain will not be like that; it will not be something to which we can gradually adapt. Rather, this technology could mean that our current business model will soon be completely outdated. It is therefore vital that we reinvent ourselves.
What exactly is blockchain?Blockchain is a network of computers which together maintain a collective, decentralised ledger, sometimes called a distributed ledger. It can be used to store and transfer ‘value’, for example (digital) money, but also real estate contracts or votes during an election.
One key application is the ‘smart contract’, in which all the terms of a contract are laid down (programmed). These contracts are self-maintaining and therefore eliminate the need for verification by a third party, such as a civil-law notary.
Blockchain increases confidence
Any change made in the ledger has to be approved by all the computers in the network, independently of each other. If one server is hacked, the other ‘nodes’ (network components) recognise the discrepancy and block the transaction. The more nodes there are in the blockchain, the more secure the transaction. Several types of transactions can be performed securely and transparently in this way, without the intervention of a third party.
A new role for banks
Currently, when you transfer money from your account to someone else’s account, they first receive notification of the transaction (credit), but the actual transaction only takes place later. A bank bridges this period, so that the beneficiary can spend the money straight away.
Blockchain works a good deal faster: the information and value transfer are processed at the same time, thus reducing the risk. The arrival of blockchain is forcing banks to prepare for a new role, because in some areas it is quite possible that we will no longer be needed in the future.
What is ABN AMRO doing with blockchain?
ABN AMRO is reviewing all parts of its business. This means we are exploring the impact of blockchain on our core processes, products and services, from mortgages and risk models to cross-border payments. We are working on ‘what if’ scenarios and pilots in several sectors. For example, we are experimenting with registering ship freight in the Port of Rotterdam using a blockchain. Information on the cargo will then no longer be registered with several different parties, but can be consulted at this one location. We are also investigating how parties involved in real estate transactions could record and share information using a blockchain application.
Learning through collaboration
We are not embarking on the quest for opportunities within the blockchain environment on our own. We are partnering major tech companies such as IBM and Delft University of Technology (TU Delft), but also working with young blockchain players. For example, we have forged partnerships with Digital Asset Holdings and Linux Hyperledger and become a member of R3 to enable us to work on the further development of the technology.
The voyage of discovery continues
Our search for the perfect application for blockchain continues. This is an exciting period, because we are working in ways that are completely new for us. We are continuing to experiment with an open mind. We are preparing for a number of possible scenarios and in reality are betting on several horses at the same time. And when blockchain transforms the financial world, we will transform along with it.
One thing is clear: blockchain has the potential to turn the world on its head. But it is not only the banking world that needs to change its perspective: blockchain has consequences for every kind of independent third party – think of insurers, estate agents and civil-law notaries, to take just a few examples. Moreover, it can be used for all kinds of transactions: currency and commerce, real estate and contracts, identity management and identity documents, loyalty programmes and elections: the possibilities are almost endless.