Banks should seek to leverage blockchain technologies as part of a bid to defend their business models from disruption, Deutsche Bank Research suggested in a recent post online.
Entitled "Blockchain – attack is probably the best form of defence", the post discusses bitcoin and blockchain and its implications for major banks broadly, calling the technology "one of the first truly disruptive ideas from the FinTech sector".
Author Thomas Dapp goes on to discuss his view that the true power behind bitcoin and the blockchain lies in its application of peer-to-peer (P2P) technology to the financial sector, calling this a potential "paradigm shift" that could render business divisions of major banks redundant.
"Financial services and products that can be offered virtually in real time around the globe in future while at the same time reducing costs could catapult the traditional banks back to top spot in the race to devise financial innovations."
Dapp indicates that financial entities including stock exchanges, credit card firms and clearing houses are all trying to leverage blockchain technology to assess whether it is a threat or potential benefit to their operations.
Deutsche Bank Research is the macroeconomic analysis division of the Germany-based banking and financial services giant, responsible for tracking trends that represent risks and opportunities to its operations.
The publication comes on the heels of Deutsche Bank's new filings with European regulators, in which the company boasted that it is currently analyzing applications for blockchains and distributed ledgers.
Dapp writes that a viable strategy for banks would be to use "certain parts" of the blockchain for their own purposes, a decision he said would necessitate removing the P2P nature of the technology in its current form.
"It is entirely conceivable that banks could ... set up a new digital booking and clearing system amongst themselves enabling them to offer client transactions featuring the benefits of the blockchain, such as speed, efficiency, internationality and cost savings," he wrote.
Such systems, he infers, could perhaps be built on permissioned blockchains that enable the efficiencies of blockchain-based consensus without relying on bitcoin mining, which he described as "energy hungry" due to its reliance on a distributed base of computers.
Dapp notably made no mention of alternative networks that could support these goals, however, noting only the limitations of current technologies.
"Moreover, banks could configure their system in a user-friendlier fashion for less tech-savvy customers and enhance their offer with extra personalised financial services, which the blockchain cannot do as things stand today."
The author framed consumer trust as the biggest advantage banks have over more industry-specific startups seeking to build on and popularize the technology.
Dapp argued banks could position themselves as the trusted holder of the cryptographic keys necessary to secure funds on a blockchain.
The post framed regulation as a potential roadblock to a pure P2P financial ecosystem, another advantage for banks, he said, given that the change would require "considerable discussion" and lead to "huge protests".
Still, he encouraged banks to follow the lead of bitcoin and blockchain industry companies by investigating the potential of the technology further despite a lack of clarity.
"Traditional banks should not rely on the regulator now," he continued, "but instead actively experiment with the new technologies in their labs and collaborate without prejudice in order to create their own digital ecosystem in the medium run."