Blockchain: Beware the Hype

by Zilvinas Bareisis, May 23, 2016
Industry Trends
Global

Abstract

The payments industry was one of the first to take note of blockchain potential. However, as with many new technologies, blockchain is at risk of being overhyped. This report discusses blockchain impact on payments, reviews the emerging ecosystem around shared ledgers, and warns financial institutions against succumbing to hype.

Celent has released a new report titled Blockchain: Beware the Hype. It addresses three key research questions.

We stick to our conclusion made in 2014 that Bitcoin will remain a niche payment system at best, but acknowledge that the Bitcoin blockchain could be used for settlement, while hiding the cryptocurrency complexities from end users. In the short term, shared ledgers will help improve cross-border payments and payment back office functions. Longer term, if central banks were to issue their own cryptocurrencies, this would have far-reaching consequences on the entire banking industry, not just payments.

The emerging blockchain ecosystem remains fluid, but Celent believes it is helpful to distinguish between collaborative and individual efforts in three areas: developing practical use cases, advancing the technology and tools, and providing the underlying infrastructure.

However, we also note that blockchain is at risk of becoming overhyped. In a relatively short period of time, “blockchain” has become a buzzword, with a vast range of companies and initiatives claiming to be under the blockchain banner.

“While there is no doubt that it is an exciting technology, with much of its potential yet to be revealed, it is also clear that it is not an answer to all the world’s problems,” says Zilvinas Bareisis, a senior analyst with Celent’s Banking practice and author of the report. “Rather than blindly jumping on the blockchain bandwagon, we encourage our clients to think carefully about suitability of technology for the business problem at hand. The industry’s most thoughtful practitioners are deconstructing blockchain technology to its fundamental components and are looking for ways to assemble the most attractive features in a way that makes sense for financial services. We wholeheartedly endorse such an approach.”

This report contains 11 figures.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

Reminder: Fundamentals of Bitcoin and Shared Ledgers

3

Blockchain’s Impact on Payments

6

 

Bitcoin: Currency and Payment System

6

 

Blockchain for Payment Settlement

7

 

Other Payments Applications

9

 

Central Bank-Issued Cryptocurrencies

9

The Emerging Blockchain Ecosystem

11

 

Use Cases

12

 

Technology and Tools

13

 

Infrastructure

14

 

Collaborative Efforts

14

Beware the Blockchain Hype!

16

Path Forward

20

Leveraging Celent’s Expertise

21

 

Support for Financial Institutions

21

 

Support for Vendors

21

Related Celent Research

22

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