Banking  •  News

Goldman Sachs: Blockchain is Ready For Centre Stage

(@yessi_kbello) | Published on December 2, 2015 at 18:30 BST

Blockchain technology is ready to "take centre stage", says a new report by banking giant Goldman Sachs.

The bank – which participated in Circle's $50m funding round earlier this year – notes in its Emerging Theme Radar research note sent to clients today that bitcoin might just be the "opening act" for blockchain technology.

The report, from the equity research team, reads:

"Once considered the underlying pipes of bitcoin, this technology is ... ushering in a new set of tools to cut costs and challenge the profit pool of the middle-man with a promise to make centralised institutions obsolete. This solution promises to not just address consumer opportunities but also those for the far more lucrative enterprise."

The report's author, Robert D. Boroujerdi, is also quick to note that the "hype is high" and that "roadblocks" remain before blockchain technology's potential can be fully realised. 

Cutting out the middle-man

Boroujerdi chose to highlight the decentralized nature of the bitcoin blockchain as its major advantage over existing financial ledger systems.

Cutting out the middleman means blockchain technology can operate more efficiently, more securely and at a lower cost than current systems, Boroujerdi writes, adding that it can reduce counterparty risk and has the potential to provide instant feedback on transaction risks and costs.

The report highlights a number of use cases for blockchain technology, ranging from back-office functions and regulatory paperwork at banks to notarising alternative assets like artwork or providing a record of academic certificates.

According to the report:

"This decentralized, cryptography-based solution cuts out the middle man. It has the potential to redefine transactions and the back office of a multitude of different industries."

Blockchains without bitcoin

The report also points out some of the potential problems with blockchain technology.

Among them are restricted scalability, with the bitcoin blockchain's seven transactions per second compared unfavourably to VisaNet's 47,000.

It also notes that the question of public or private blockchains may cause friction, slowing adoption and increasing fragmentation.

Goldman Sachs report

Boroujerdi points to a healthy startup ecosystem benefitting from "exponential" growth in venture capital invested, but highlights the fact that there are players in the ecosystem beyond the startup world who could bring the technology to corporate America.

Outside startups, Goldman is closely following the work done by the banking consortium R3CEV (of which Goldman is a member); IBM's ADEPT project, which seeks to marry the Internet of Things and blockchain technologies; and Nasdaq, which has built its Linq private markets platform on a blockchain.

Can blockchains exist without bitcoin? The answer is a firm yes, according to the report:

"Those who wrote off bitcoin may have missed the golden egg – an underlying technology driver aimed at streamlining, potentially, a multitude of businesses. Put simply, the blockchain can live outside a world of bitcoin."

Goldman's client note comes after it filed a patent last month for a securities settlement system based on a new cryptocurrency called SETLcoin.

This spring, its analysts covered bitcoin and blockchains extensively in a multi-part report on "the future of finance".

Joon Ian Wong contributed reporting.

Blockchain TechnologyGoldman SachsResearch

Load Comments