"To me, network effect is the key."
So says Saket Sharma, CIO of New York-based financial services firm BNY Mellon's Treasury Services unit, as he outlined the bank’s approach to adopting the technology that underlies bitcoin.
Last week, BNY Mellon hosted a day of seminars focused on the blockchain. The event, which drew a small but engaged crowd of BNY employees, followed months of internal development and experimentation that saw the bank pilot its own digital currency and, later, joining a consortium of financial institutions looking to implement the technology.
In an interview, Sharma argued that collaboration among banks, particularly when it comes to establishing standards of use, will be the driving factor as to whether financial companies begin using blockchains for their services.
He told CoinDesk:
"I can come up with a solution that’s great, but [it doesn't matter] if I don’t have a network effect – and that’s where I think it’s a combination of the financial industry coming together that will really make this a viable thing if this technology picks up.”
Sharma said that all of the business lines within BNY Mellon are looking at possible blockchain applications, but cautioned that the bank sees regulatory and legal questions as an impediment to adoption.
"I think there’s a lot of potential with this technology, and our goal is to really capitalize on the talent in the bank, working collaboratively with others, and play a bigger role in the opportunities there," he said.
According to Sharma, BNY Mellon began to look into the technology by testing bitcoin and, later, its own kind of digital currency.
"We started with the bitcoin," he said. "We downloaded Bitcoin Core, we modified it, we actually ran it on an internal private cloud,” he said.
These days, Sharma continued, business units within the bank meet monthly to discuss the results of those blockchain experiments. This, he said, is one product of an effort to establish a culture of experimentation of new technologies within BNY Mellon.
"The question really is, how do we engage the larger BNY community to really start thinking about what is meaningful to us, right? Because to me there are 50,000 use cases but not everything is applicable."
Sharma added that he has pushed for a more ground-up approach to technology testing within the bank, arguing that collaboration between business units or companies is a better way to approach potential business models compared to a top-down, mandate-driven process.
"To me, the culture of innovation doesn’t come from five people sitting in a room and saying I know already. I don’t buy that culture," he remarked, going on to say:
"I would rather ignite the process in 50,000 people across an organization."
Sharma went on to reiterate that the bank sees the pursuit of standards for the technology as a key priority as the industry moves toward potential adoption.
This, he said, will enable greater degrees of operability in the event that financial firms operate their own blockchains, pointing to past conversations with startups working in the bitcoin and blockchain space as examples of how the industry hasn’t settled on one solution over another.
"When [Digital Asset Holdings CEO] Blythe Masters came to us last year, she said we have a technology that's blockchain agnostic. I was surprised. Is it really? I looked at her and said you don’t have a technology. And two weeks down the line they went and bought Hyperledger," said Sharma.
Sharma went on to relate a similar experience with bitcoin market data provider TradeBlock. He said that while, during initial conversations, the startup indicated that it used its own proprietary code, the company has since shifted to Ethereum.
"So the underlying technology itself is so fluid that there’s no stack as a standard, right? So unless you have a standard, you will not be able to interoperate, eventually," he continued.
Sharma went on to say that the bank’s look at blockchain applications is part of a wider effort to examine how new forms of financial technology.
He suggested that the financial services industry is undergoing a significant period of hype, one that could result in significant change – or simply end up as an unfulfilled promise.
He told CoinDesk:
"This particular technology is at the peak of the hype cycle at this point in time. When it goes down the slope, you will see real applications coming in. And that’s where the real adoption and the real maturity of it is going to happen."
For now, he said, the bank is committed to pursuing use standards through the R3CEV-led bank consortium, as well as promoting more in-house experimentation and education, both in terms of distributed ledgers as well as other forms of financial technology.
"That’s a great opportunity for a bank – and [blockchain technology] is one example," he said, adding:
“The idea is to look at all things.”
BNY Mellon Center image via Shutterstock