A San Francisco-based technology company has announced the launch of its Chain Core Developer edition. The release is an open source version of Chain’s distributed ledger platform. Chain’s Enterprise edition is already used by capital markets and the payment, banking and insurance industries.

Prior to the open source edition, access to the software was restricted to working with Chain’s major collaborators, such as Visa and Nasdaq, however, the announcement of the open source edition means developers are free to test out prototypes on the network, which is run by Chain, Microsoft and the Initiative for Cryptocurrencies and Contracts (IC3).

In addition, developers can use the open source software to start or join a blockchain network or to build their own financial apps; they can also gain access to detailed technological documentation and tutorials to help get them started.

Commenting on the release, Marley Gray, Principal Architect PM and Azure Blockchain Engineering at Microsoft, said:

“Microsoft believes the potential for blockchain technology to digitally transform the financial industry is enormous.”

“We are pleased to support the operation of the Chain testnet on Microsoft Azure Blockchain as a Service and look forward to collaborating with the ecosystem to enable financial institutions to adopt distributed ledger technology.”

Chain’s open source edition comes with Java SDK and code samples to get started. Installers and the dashboard interface are compatible with Windows, Mac and Linux.

The Official Release

Chain’s open source developer edition had its official launch at the Money20/20 event, which is held in Las Vegas, and is dedicated to payments industry and fintech.

For those not familiar with it, blockchain could be best described as a “public ledger or distributed database.” A blockchain can act as both a peer-2-peer business network and as a shared ledger; it provides a greater level of transparency, while providing a secure storage space that is easily accessible by everyone permitted to access the data.

The developer platform launch followed the early 2016 announcement that Chain Open Standard was to be released in an open source format. Speaking to CoinDesk, in May, Chain’s CTO Adam Ludwin described the news as their biggest release yet.

Ludwin went on to say he hoped the release would play a major part in the blockchain technology being used more widely among financial intuitions around the world. Major financial firms collaborated on the project to make the release possible, including Visa, Fidelity, Capital One, and Citi.

Other Open Source Blockchain Software Release

Although Chain has gained a significant amount of financial support, with $40 million from investors so far, and is considered as an innovator in this field, it does face some strong competition, and it is by far from the only company to make its software available on an open source basis.

These are some of the most notable names in open source blockchain technology:

  • Openchain can be adapted for use in the securities sector, for managing music and for software licensing, gift cards and loyalty points. It’s available as a download and allows instant, free transactions.
  • The Hyperledger project is a collaboration of financial companies and other organizations. They are working together to see how blockchain could be used in the financial industry. However, Hyperledger is also exploring how this technology can be used in healthcare to reduce costs, enhance patient outcomes and improve data flow.
  • MultiChain is described as a ‘developer friendly’ option, which allows developers to create blockchain applications with ease. MultiChain has been working in partnership with several collaborators from the software industry and IT consulting firms, including Lexington Innovations and Accenture.
  • R3 is a consortium of more than 50 financial institutions, who are working together to advance ledger technologies, and it predicts that blockchain will change the finance sector in the same way the Internet transformed media.
  • In November, R3 announced it would be making its software, Corda, available on an open source basis from the end of the month. However, in the statement announcing the release, the company makes clear that there is still work to be done on the software. Moreover, a commercial version is scheduled for release.

What Blockchain Means for the Financial Industry

Blockchain is widely recognized as the code that makes Bitcoin possible, and it means there is no need to depend on a central ledger as financial institutions and a range of other sectors can create their own.

Blockchain’s potential is vast with cybersecurity, real estate, online music sites, and even voting systems potentially benefiting from it in the future, and it is gaining interest in the utility industry, too.

However, with its potential to increase settlement times and reduce the costs of transactions, it shouldn’t be surprising that blockchain has caught the interest of banking and financial institutions, who have started to experiment with it.

In October, Visa announced that it was teaming up with Chain to create B2B Connect, which will offer “near real-time transaction system designed for the exchange of high-value international payments between participating banks on behalf of their corporate clients.”

Visa will begin the pilot of B2B Connect in 2017. Visa says this will enhance the way that B2B transactions are made by making payments more secure and transparent, due to the near real-time notifications of transactions.

Morgan Stanley and Santander are also among the financial institutions actively exploring blockchain. In 2015, Spanish bank Santander announced it would be using blockchain for international payments. It was introduced as a staff pilot, with the intention of rolling it out later. The bank estimates that the use of blockchain could save up to $20 billion a year by 2022.

Financial expert Chris Skinner also recognizes the potential of blockchain and describes it as “the next logical step for financial transactions,” according to an article published on the Association for Financial Professionals (AFP) website. However, in the same article, Skinner describes blockchain as “underdelivering,” due to the problems involved with sharing a database, but once these issues have been overcome, Skinner can envisage blockchain being used in the corporate treasury sector.

In addition, blockchain is gaining interest globally, and this is a trend that is likely to continue to grow. Australia is one of the country’s leading the way, with several companies in the fintech sector already using it.

Benefits of Blockchain Technology

There are numerous benefits of introducing blockchain including:

  • Quicker settlement times.
  • Greater network efficiency.
  • Once a blockchain has been set up, it is cost effective due to the lower fees, and there are lower infrastructure costs.
  • A reduction in paperwork and logistical challenges.
  • Enhanced transparency.
  • The ability to reach new markets – blockchain technology is considered beneficial to emerging markets. Founder of the Virgin Group, Richard Branson, has stated that it could deliver an “economic revolution” to developing countries.

In an April 2016 report, “Global Insight: Blockchain in Banking: Disruptive Threat or Tool?,” Morgan Stanley also detailed the positives that blockchain offers the financial world, such as limiting clutter and reducing costs, and it is not just the banks and other financial institutions that will benefit.

Morgan Stanley’s report highlights how consumers will – at some point in the future – be able to take advantage of the improved services and products offered through blockchain, however, like others, Morgan Stanley caution that widespread industry adoption is a long way off.

Their report says that the transition will be ‘gradual’ and industry consortiums are likely to be the future leaders in this field, rather than start-ups.

Challenges Facing Blockchain Technology

Although there are many potential benefits of blockchain technology, its wider adoption in the financial sector faces numerous challenges, too. Deloitte has highlighted what it sees as some of the main difficulties.

  • One of the most notable challenges is the initial high costs of setting up a blockchain system, however, Deloitte says that blockchain offers ‘tremendous’ savings on transaction costs, and it also boosts efficiency.
  • Perhaps the most significant challenge will be cultural adoption. Deloitte says it will take some time before users and operators will feel comfortable using blockchain as routine.
  • There are also concerns over security and privacy. Deloitte says cyber security needs to be addressed if blockchain is going to win the trust of the public.
  • Morgan Stanley highlights how scalability will be an issue, they state: “Any blockchain must scale effectively from proof-of-concept to succeed, a key reason why most new blockchain proposals are looking at a range of rules, including ones that restrict users or centralize all or part, of the blockchain. Without these, higher energy costs could eliminate the benefits from lower personnel costs.”

Potential security issues also remain a concern, as do the legal risks, regulation and the governance of such a system.

Citigroup, one of the supporters of chain, also highlight several challenges. These include the need to adapt regulatory and legal frameworks, and at the moment the technology isn’t at industrial grade.

The Future of Blockchain

In its report, “Blockchain: Putting Theory into Practice,” Goldman Sachs predicts that there will be early-stage prototypes within the next two years. In two to five years, they believe it will have limited market adoption, and they say it will gain wider acceptance within the next decade.

Goldman Sachs also states blockchain technology will have a greater use beyond just banking. It envisages it being used in real estate, title insurance, securities and in anti-money laundering compliance.

In August 2016, a report published by the World Economic Forum (WEF), “The Future of Financial Infrastructure,” set out how it foresees blockchain changing the financial world, including the capital raising and lending depositing sectors.

WEF predicts blockchain will be used in conjunction with other new technologies, such as biometrics and cloud computing, to further transform the way the financial industry works.

Giancarlo Bruno, Head of Financial Services Industries, WEF, goes as far to say that blockchain will become the “beating heart” of the finance industry in the future, however, the report also warned that financial institutions needed to work in collaboration if the many benefits of this technology are to be achieved.

The effects on the ratings of bank who implement blockchain are also something to look out for. In a recent report, ratings agency Standard and Poor said that while the technology wasn’t impacting on banks’ ratings yet, it could do in the future.

S&P stated “… we do not see blockchain as a rating driver in the near term or even perhaps in the long term, but we consider that, depending on the technology’s eventual application and whether it takes hold in the financial industry, it could have a substantial impact on institutions’ business models.”

Looking forward, blockchain also has the support of Lael Brainard, of the US Federal Reserve Board of Governors. In a speech given at the Institute of International Finance earlier in 2016, Brainard was broadly positive about the use of blockchain, however, she also urged caution and suggested that the technology would need constant revaluation, according to CoinDesk.

However, despite all blockchain has to offer, Adam Draper, the founder of Boost VC, stated during a speech in November 2016 that he didn’t expect that blockchain would replace cash at any point in the future.

Conclusion:

Some say that 2016 was the biggest year for blockchain, and there have certainly been some exciting developments as financial institutions continue to experiment with it to see what it could mean for the future of their businesses. However, it is likely to be some time before it is used in real-world transactions.

While blockchain offers many potential benefits, such as more transparent transactions and quicker settlement times, there are still challenges that lay ahead. And one of the biggest obstacles will be how the technology is perceived by potential users, and addressing concerns they might have over security and privacy.

However, these concerns are likely to ease over time as blockchain is used more widely in the financial industry, and as the benefits of it are more widely realized.

Founder and CEO of Preferred Payments. Financial guru and advocate for transparency in the merchant provider space.