Recently, I had an interesting conversation with Anthony Macey, Head of Blockchain R&D for Barclays Bank.
Barclays has publicly stated that “blockchain is part of the new operating system for the planet,” so I wanted to find out more.
TechWatch: Is your blockchain team in Northern Ireland?
Anthony Macey: “We work with business teams in particular areas across Barclays – there is no dedicated regional centre for blockchain.”
TW: How is the bank thinking about blockchain?
AM: “There are aspects to blockchain that are useful internally and things that could be perceived as a threat externally, so we’re paying attention to both.”
TW: Can you point to specific applications?
AM: “Internally, we looked at trade finance applications. We did some work with a company called Wave. We took documentation that was used in a transaction between Ornua (Formerly the Irish Dairy Board) and the Seychelles, and digitised those documents using blockchain. It did the two key things that blockchain is useful for – improving workflow management and moving an asset of value around.”
TW: Question of ownership is solved by blockchain?
AM: “You can move assets around without creating different copies of it. Email creates copies of things. Where there are a number of players involved in a transaction, blockchain applications could reduce cost and improve efficiency. Ownership is more of a legal question than a technology question though.”
TW: How quickly will it happen?
AM: “It’s not always easy to deliver a massive change to infrastructure – it’s quite complex and layered and built over a number of years.
“We’ve seen outside innovations in blockchain, for instance in payments, reducing fees for international transfers. Startup players are able to do this because they don’t have the legacy infrastructure or regulations that we have to deal with as a bank.”
“For example, we can engage with some of our vendors on upgrades – one example is SWIFT.”
TW: So SWIFT is using blockchain?
AM: “They’ve spoken publically that they’re looking into it. SWIFT does what it’s supposed to do. The thing to remember is that it’s the regulation – how do you settle the value on the back end – how do you move central bank assets across borders?”
“At the back end there’s a clearing cycle which is where you have the real movement of funds.”
“It’s the same between central banks – it’s a complex process with many players involved. Blockchain could play a part, but this notion that you could replace SWIFT isn’t completely accurate and it is not obvious that it would improve efficiency if you did.”
TW: Could blockchain rebuild central banks?
AM: “It’s something they are looking at very closely. They control money supply and make sure the economy doesn’t tank. They can’t control the supply and demand of bitcoin, so that creates quite a problem. If they could issue their own digital currency, the benefits seem to be many and great, but it’s complex.”
“If the Central Bank of England decided to create its own digital currency, there would be huge gains to be had by breaking into it.”
TW: Can you hedge a bet, when the Central Bank of England will create a cryptocurrency?
AM: “There’s a difference between digital currency and cryptocurrency. There’s a great need to make small value payments over the internet. If you want to spend a low amount, it doesn’t make sense to use your card.”
“Here’s one example. People would pay a few pence to read articles on newspaper sites. But there’s no mechanism, it’s too low to use your card. Advertising is effectively filling the hole that would be filled if there was a digital currency for low value payments.”
“Cryptocurrencies are for when you need resilience of your platform. We’re 15 – 20 years away from central banks doing that.”
TW: Longer than people think.
AM: “People see Uber as overnight successes but they’re not – Uber has been around 10 years – it takes a long time for something to get critical mass and momentum.”
“The answer is both zero and 100 years. Over a period of years you’ll see greater and greater uses of blockchain. Amazon, Google and Facebook weren’t on the internet on day one. “
TW: Is it fair to say that the first blockchain innovation that matters to Barclays is international money transfers?
AM: “No it’s not. Trade, capital markets, and regulatory reporting are areas that are interesting early on, in the adoption cycle. Exceptionally useful, but maybe not as exciting.”
“The stuff that’s nearer term is probably the most boring stuff to everyone else, because it deals with basic foundations of how things are built.”
TW: Is blockchain over-hyped?
AM: “Hype has both positives and negatives – it gets people thinking about it, to solve very complex problems – the downsides to hype are when people get disillusioned.”
“Small incremental changes are harder to get excited about.”