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Tapping the Real Potential of Blockchain

Robert Palatnick, DTCC’s Chief Technology Architect, cuts through the hype on modernizing the post-trade ecosystem.

Rob Palatnick, DTCC’s Chief Technology Architect, has seen and heard about virtually every new technology that was going to transform the financial post-trade ecosystem during his more than three decades in financial services. But even that didn’t prepare him for the frenzy around blockchain, the electronic distributed ledger that underpins the Bitcoin currency. In a year of see-sawing markets, new regulations and stubborn economic growth, 2015 will most likely be remembered as the year that blockchain went mainstream. But can the technology live up to the hype?

“It all depends on who you ask,” said Palatnick, explaining that opinions run the gamut from those who claim blockchain can eventually disrupt and replace the entire financial system to others who think its applicability is significantly more limited. “At DTCC, we believe distributed ledgers like blockchain hold enormous potential to modernize certain areas of the post-trade process. But our experience also tells us that it may be more cost effective to solve some long-standing challenges by standardizing workflows, expanding use of the cloud and improving existing technology.”

As far as disruptive technologies go, Palatnick likes to remind his colleagues that blockchain isn’t a hammer and every problem isn’t a nail. He is excited by what the future holds, but is equally realistic about current limitations.

“Distributed ledgers are still immature and unproven,” he said. “They have inherent scale limitations and lack the underlying infrastructure to seamlessly integrate into the existing financial market environment. Like all major technological advancements, improvements will happen over time, but I don’t expect we’ll see wide-scale adoption in the short term.”

Despite this reality, enthusiasm in the technology among major banks and service providers remains strong. Many are creating blockchain labs and funding experiments in multiple asset classes. While this level of activity may spark innovation and quicken development of use cases, the seemingly chaotic whirlwind of multiple and competing bets is not without pitfalls. With so many firms working privately, the industry runs the risk of creating a new and disconnected maze of distributed ledger silos based on different standards and with significant reconciliation challenges – essentially the same issues with today’s infrastructure.

Palatnick believes industry-wide collaboration is essential to re-architecting core processes and practices. It would foster standardization, prioritize the infrastructure building blocks and support focused experiments to help the technology mature. He sees existing regulated and trusted central authorities, like DTCC, playing a leading role in introducing the standards, governance and technology to support distributed ledger implementations. These organizations would work in partnership with the industry and its supervising regulators to ensure that new opportunities are in the best interests of post-trade processing and consistent with long-standing goals of mitigating risk, enhancing efficiencies and reducing costs for market participants.

“That is the surest way to turn the hype into reality,” Palatnick said. “We have a once-in-a-generation opportunity to modernize the post-trade environment. We need to work together to make sure we do it right the first time.”

Click here to read DTCC's blockchain white paper, "Embracing Disruption: Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape”

Blockchain

Blythe Masters CEO of Digital Asset

"DTCC has ensured the safety and soundness of our markets for decades and has an important role to play in the integration of a distributed ledger infrastructure with the existing financial landscape. Our partnership with the DTCC will accelerate innovation and help drive the global adoption of this transformative technology to modernize the post-trade ecosystem to the benefit of our clients."