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The commercial potential of blockchain and digital currencies


More transparency, traceability, and security can create tangible improvements to financial services and international transactions.

Blockchain networks hold tremendous power in their ability to boost security, which can help ensure data integrity, promote transaction and settlement efficiency, and verify identity.

However, many current business applications of blockchain are still in experimental stages. Use cases range from academic research experiments to the eventual issuance of central bank digital currency.

Although mainstream adoption of blockchain applications is nascent, it’s advancing swiftly. Numerous blockchain experiments for international payments have been conducted in recent years. And virtually all of them fall into three design patterns, which are reviewed in this report: the custodian model, the correspondent model, and the digital asset model.

One problem with the digital asset model can be a lack of confidence in the underlying digital asset. Legitimate questions arise about who controls the exchange rates for digital currencies, resurfacing fears of foreign exchange market manipulation and concerns for liquidity provision.

The traceability of blockchain can help prevent financial crimes such as money laundering and corruption, and the efficiency of blockchain will reduce transaction and settlement frictions.

This report explores how blockchain, as well as “altcoin” alternatives such as Bitcoin, can help create a future of programmable money.

The future of money

Blockchain came to prominence as the digital ledger technology for the crypto-currency known as Bitcoin. This programmable money has been a double-edged sword to the world. On one hand, it proved the feasibility of a self-regulating, global, digital, peer-to-peer payment network, operating without a trusted third-party intermediary (such as a bank, credit card company or payment company). On the other hand, Bitcoin has tended to promote the perception among an increasingly digital populace that banks are no longer necessary.

Many consumers believe that money should move as easily as email. A growing number of articles debate whether the current banking system or even banks themselves are becoming obsolete. Many people believe that if banks were cut out as an intermediary, payments could be simpler, autonomous and instanta-neous. A number of these articles describe the following principles for ideal digital money. The first is that money should be intrinsically connected to the internet, unconstrained by geography or institutions. Second is that foreign exchange should be immediate. Third is that all transactions should be free.

The thinking goes that if sending messages using email is free, why shouldn’t sending money also be free? Although the principles of digital money are valuable and achievable, banks will continue to play a key role in the global financial system and economy established by central authorities. These authorities direct banks to allocate funds from savers to borrowers in an efficient, fair and equitable manner. Banks also will continue to perform critical everyday operational tasks such as verifying identities, monitoring transactions for fraud, preventing money laundering and filing suspicious activity reports to government and law enforcement. These activities are invisible to most retail consumers of banking services.


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Meet the authors

Jesse Lund

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, Vice President, Global Blockchain Market Development, IBM Financial Services Sector


Jed McCaleb

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, Stellar Cofounder and Chief Technical Officer


Lindsay Lin

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, Counsel and Program Manager, Lightyear.io

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Originally published 01 January 2018