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"We are nowhere near the web yet."

So said Neha Narula, director of research at MIT's Digital Currency Initiative, at a one-day event hosted by the MIT FinTech Club this weekend.

Speaking at MIT Fintech Conference 2017, Narula discussed where blockchain is in terms of its evolution, offering strong words of caution for more novice observers.

The comments cut to the core of popular comparisons to the Internet that seek to portray blockchain as a mature technology vertical. Further, Narula's comments were a stark contrast to other voices on the panel, there to focus on blockchain and its impact on banking.

Narula told attendees:

"At MIT, we are pretty certain we are in the 1970s or 1980s. We think we are around TCP/IP era. We are just figuring out the basic protocols of what is going to be network technologies.”

Banks and blockchain

At other points in the panel, conversation switched to external interest in blockchain tech.

For example, Tim Grant, CEO at R3 Lab and Research Centre, argued blockchain tech won't overhaul the banking system until we get governments, regulators and central banks all on board.

He told the audience:

"You don't know regulations until you get into financial services."

That's not to say that there was broad agreement on that opinion, however.

Karen Hsu, head of growth at blockchain web services startup BlockCypher, countered, stating that, in instances like remittances, "need" and "pain" will lead onerous regulations to adapt.

Because blockchain cuts out the middleman, the technology has the potential to make sending money across borders easier, she argued. Though, even those efforts have run into regulatory problems.

On the other hand, as Andrew Keys, head of global business development of ethereum startup ConsenSys, pointed out, we are seeing a tremendous push for digital ledger technology internationally.

Some of the more active jurisdictions, he noted, have been places like Dubai and Singapore – smaller regions that may be more aggressive in implementing the tech.

Last year, for example, Dubai's government announced it intends to shift all transactions to blockchain by 2020 as part of a strategy to make all departments more efficient. Further, local regulators like the Dubai International Financial Centre (DIFC) are becoming involved.

Snag in the plan

Still, some financial processes, like trade settlements, may continue uninterrupted.

Mainly due to a process called 'netting', it is unlikely blockchain technology will ever be useful in settling trades, according to Mark Wetjen, managing director and head of global public policy at Depository Trust & Clearing Corporation (DTCC), a post-trade financial services company.

Netting, a process for consolidating transactions, minimizes the regulatory burden that comes with trading capital markets.

While the DTCC processes $3.5tn worth of trades every day, those transactions don't happen in real time. Instead, payments are aggregated, so that only a net value is settled between parties based on a security on a particular day.

Wetjen said:

"Is there some way where netting isn’t so important anymore, in which case, some technology like a blockchain-based approach could work? Otherwise you are dealing with the concept of gross settlement, where you settle every single trade that takes place in the course of a day. It is massive and introduces a hell of a lot more risk, so most firms don't want to do that."

On the other hand, he argued, distributed ledger technology is ideal for credit default swaps and 'repos' – a use case the utility is actively exploring with startup Digital Asset Holdings.

In fact, DTCC announced earlier this year a plan to use blockchain to rebuild its platform that processes $11tn worth of credit default swaps.

Road ahead

One thing the panel did agree on, however, is that the blockchain tech still has a long road to travel before meeting the mainstream.

If that is the case, some of the big disruptions many hope to see in banking, even if they occur incrementally, are still some way off in the future.

Hsu summed up the sentiment, saying:

"While we are making clear, quick wins in areas like reporting and reconciliation, to reach real promise it will take many more years, more collaborations."

Image via Amy Castor for CoinDesk

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