FRANKFURT (Reuters) - Financial regulators are warming up to new uses for “blockchain” technology, which promises tamper-proof communication and makes many types of transactions far more secure, Blythe Masters, the head of one firm in the market, told Reuters.
Blockchain is best-known for underpinning the controversial web-based cryptocurrency bitcoin used to move money around the world quickly and anonymously, making it attractive to drug dealers and those trying to circumvent capital controls among others.
Masters, no stranger to controversy herself after helping develop the credit derivatives market that blew huge holes in financial firms’ balance sheets in the 2007-08 credit crisis, said the technology could be as significant as the Internet.
“Regulators are very interested in the potential of this technology to improve transparency, audit trails, transaction reporting and reduce operational risk,” said Masters, who runs blockchain start-up Digital Asset Holding.
Blockchain technology builds up a massive ledger of transactions that is verified and shared by a global network of computers. Any two parties can use it to exchange information including stock deals and legal contracts, with no need for a central body to verify each transaction.
Masters said many post-trade infrastructures were outdated and required new technologies such as blockchain to support them in a hugely challenging environment.
“More broadly, (regulators) hope the blockchain technology can be beneficial to the economy,” she said, adding that they had begun to focus more on the technology’s benefits and less on the potential risks.
Banks reckon the nascent technology could save them money by making their operations faster, more efficient and more transparent.
Regulators, however, have previously said it could reduce the role of intermediaries such as banks and settlement houses. They have also said the technology did not fit easily into existing regulatory frameworks.
Over the past year, however, interest in blockchain technology has grown rapidly. It has already attracted investment from many major financial institutions, including Goldman Sachs, Citigroup, JP Morgan, BNP Paribas and Deutsche Boerse.
Considered the most high-profile woman on Wall Street when she left JPMorgan in 2014 after 27 years, Masters signaled that it was not her goal to sell the start-up at the next best opportunity.
“The greatest benefits of this technology are extracted if you have multi-party participation,” Masters said, adding that competition for the technology was intense.
“There are other startups. There are giant technology firms, and there is competition from in-house development at potential clients who have to evaluate if they want to build or buy.”
Industry observers believe large technology groups such as IBM, Google, Intel and Cisco could one day join in on the technology.
“This is as significant as 25 years ago the Internet was,” Masters said.
Writing by Christoph Steitz; Editing by Hugh Lawson
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