One aspect of e-commerce that is on the cusp of revolution is payments being made via blockchain technology. But can blockchain, which is at heart a distributed ledger system, itself be unchained from the volatile crypto-currency market in the public mind?
Hugo McCafferty, communications manager at the Blockchain Association of Ireland, is adamant that not only can it, but that it will, and, further, that its transformative potential is unheralded.
“Blockchain has the potential to revolutionise the whole financial system,” he said.
“For payments, for all transactions really, it’s tailor-made for that. Once there’s mass adoption it will be able to facilitate all kinds of payments, from micro-payments that are too small for financial institutions to handle, right up to mega-payments between financial institutions.”
The key advantage of blockchain, which is really a form of guaranteeing trust in a transaction, is in reducing costs. McCafferty said that there are huge efficiencies to be made, but that blockchain is not, as yet, a mainstream technology. And its mainstreaming, he said, will come from surprising places.
“It’s a way off but you’ll see mass adoption first in developing markets.”
The analogy is the explosive growth of mobile communications in Africa, where fixed-line infrastructure lagged behind demand due to both economic and geographical factors: fixed-lined were soon leapfrogged by mobile phones, as cellular networks were easier and more cost-effective to build.
In the same way, McCafferty expects blockchain to release massive pent-up demand for financial transactions in areas suffering from spotty or costly infrastructure.
“Necessity is the mother of invention and the developed markets will learn from the experience elsewhere,” he said.
At the moment, it is hard to separate blockchain from crypto-currencies, and the concerns around them are legion: do they use too much energy? Are they commodities or currencies? Is the growth driven by a speculative bubble? Are some simply frauds?
McCafferty acknowledged this, but said that the fact is that blockchain technology is being developed and deployed by well-known and trusted financial institutions.
“It’s already happening,” he said. “All of the big financial institutions are working on blockchain: Mastercard, Visa, American Express; they’re already rolling out their blockchain solutions.
“In fact, Mastercard is making its blockchain solution open source as well,” he said.
Most of these companies are not, at present, using blockchain for consumer-grade payments, however. Mostly, it is being used for business-to-business payments and transfers between institutions.
When it comes to blockchain’s reputation as an energy sink, McCafferty acknowledged the problem, but said that even here he expects it to have transformational potential as it grows alongside increased feed-in of renewable electricity to the grid.
“The energy issue is a concern, but there are improvements in energy-efficiency,” he said.
“In fact, blockchain itself can have an impact on the energy sector, with people trading against the energy they produce themselves. Overall, when you look at a macro level, there is a case for it. What people have an issue with is the speculative crypto miners who are running massive rigs at home.”
For the moment, though, blockchain is unlikely to make its presence felt at the consumer level in Ireland. What McCafferty expects, however, is that it will work its way down from internal and business-to-business use, and when it does so he expects the payments sector to be unrecognisable.
“It’s still early days. In five years, it’s gong to be completely unrecognisable. It’s fascinating to watch,” he said.
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