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Is Blockchain Technology Going to Be a Massive Game Changer?

Blockchain is a new technology that might change the way banks work.

Earlier this year, the Monetary Authority of Singapore completed a proof-of-concept trial for the distributed ledger technology. The test was supported by a consortium of banks, including Singapore’s three biggest banks, DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11).

Blockchains can be used to power domestic inter-bank payments. But what are the threats and opportunities?

A massive game changer (with conditions)

In a recent earnings briefing, DBS Group chief Piyush Gupta shared his thoughts around blockchains:

“I said this before – my view on blockchain is it’s going to be a massive game changer but it is going to take time for two important reasons.

One, there’s got to be a convergence on protocols, and convergence on protocols is not easy. If you think about the old battles between Sony and Panasonic, this is not dissimilar. There’re a lot of different protocols.

Second, you need a tipping point through enough people on the network. If you have two people on a blockchain, it’s not good. If you have 20, it’s not good. You need enough people for the blockchain to start getting to be relevant.”

Due to the two reasons above, Gupta does not believe that blockchains are ready for the mainstream. He explained DBS Group’s approach to the nascent technology:

“You have two choices – to either be at the cutting edge of the process and participate in trying to drive what the right protocols should be, or you can look at other things you can do which have a more immediate impact, and then join in on blockchain once there’s clarity around scale and size.

I’ve chosen the second.”

To be sure, DBS Group is still participating in blockchain trial runs. Gupta added:   

“But having said that, we want to make sure that we understand what blockchain is, and that we have skillsets and can build some expertise.

To do this, we’ve done some pilots and experiments, one with StanChart on trade finance, one with MAS on payments and money transfer [and so on]. That’s just to keep our hand in so we know how it works, and how it would integrate into our systems.

But in my whole agenda for digitisation, this is not top of the list – as it seems that the paybacks will come much later than other things we can do more quickly.”

At the moment, it would appear that blockchains have not achieved sufficient scale. We will have to wait and see how things pan out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.