As announced at the THINK 16 conference in May, CO-OP Financial Services and TMG have commissioned a body of work by Mercator Advisory Group on blockchain technology. The goal is to help credit unions make wise decisions regarding this emerging digital ledger technology.
On October 25, 2016, CO-OP and TMG made available the first results of this initiative, including a white paper on “Are Blockchain Solutions Ready? Three Blockchain Solutions Put to the Test.”
A blockchain is a distributed database that maintains a continuously-growing list of transaction records hardened against tampering and revision. But the technology that enables this also constrains performance in ways that are not yet fully recognized or understood.
The research briefly describes Blockchain technology, identifies software management and maintenance issues associated with deployment of a Blockchain, provides a brief explanation of the criteria used to perform the evaluation, reviews the findings for the three products evaluated, provides key findings regarding the status of out-of-the-box solutions built on Blockchain technology and provides Mercator’s recommended approach for monitoring blockchain solutions to assure resources are assigned appropriately.
Mercator’s conclusion on pages 18 and 19 is significant and reads in part:
“Blockchain technology is a breakthrough that delivers a new software capability of instantiating trust and delivering a reliable shared perspective across multiple nodes and participants. But the technology that enables this also constrains performance in ways that are not yet fully recognized or understood. This is in part because the technology is so new, but also because the technology continues to be modified and refined with each implementation in an effort to tune its operation to the purpose at hand. Mercator Advisory Group is highly doubtful that any one blockchain implementation…will be capable of supporting all the applications being considered in the regulated payments industry without significant modification to make it suitable to each solution.”
CO-OP believes that blockchain is an intriguing technology and one the financial services industry needs to track carefully as it develops. However, we do not see a compelling reason for credit unions to deploy it at this time. In fact, we struggled to select the three use cases that were studied for this exercise, since many solutions utilize blockchain technology purely as a novelty. The three that were chosen – Evernym, Guardtime and Ripple – initially appeared to use the technology in a relevant manner, but further study revealed either that blockchain wasn’t an essential component of an otherwise intriguing solution, or that the legal, business and regulatory issues were not resolved at this time. So, do credit unions need to “get in the game” right now? We believe the answer is no.
CO-OP plans to revisit this topic periodically to determine if there is a point when the hype gives way to viable solutions, and the company will certainly continue to communicate with its clients and the industry on blockchain.