The rise of web3 and blockchain technology has been met with both excitement and apprehension. It is a technology that could significantly impact the financial services industry. Lars Jacob Boe, a senior partner at Bain Norway, has been closely observing this technological revolution for the past five years. At the London Blockchain Conference 2023, Lars Jacob shared his insights on the potential of blockchain and web3 to transform financial institutions.
To start with, Lars Jacob highlighted that bank executives should ask themselves these questions:
- What is web3 and is it relevant to me?
- How will it impact my business?
- Should I be worried?
- What should I do?
To grasp the significance of web3, executives must first understand its nature and potential impact. The senior partner explained that Web1 was about information, while web2 introduced communication and user-generated content. Web3 completes the internet by enabling the exchange of value in a decentralized and peer-to-peer manner, without intermediaries. He opined that this new paradigm unlocks vast possibilities for financial institutions.
Summarizing the first question, Lars Jacob stated that “blockchain is here to stay, Banks need to take it seriously.”
Digital Assets and Blockchain
While blockchain extends beyond the financial services industry, digital assets play a pivotal role. These assets can be categorized into digital currencies, such as Bitcoin and CBDCs (central bank digital currencies), and digital tokens, which can be asset-backed, fungible, or non-fungible. The potential of digital assets is enormous and holds the promise of transforming the way assets are traded, exchanged, and leveraged, Lars Jacob Boe mentioned.
According to him, the blockchain industry is still in its infancy, despite being around for over a decade since the publication of the Bitcoin whitepaper. However, we believe it is approaching an inflection point, where its growth will accelerate significantly, he said.
“When it comes to digital assets we believe it’s going to grow remarkably and work in parallel with traditional securities, in particular the asset-based tokens and the stablecoins with CBDC,” he also mentioned.
He referenced the HSBC and Northern Trust estimation that “roughly five to ten percent of world assets public exchanges currently at 300 trillion dollars will be digital in seven years.”
Challenges faced by Bank Executives
Further, he mentioned that while many executives recognize the importance of blockchain, they are often overwhelmed by the complex concepts and new terminologies associated with the technology.
Bank executives face numerous challenges in embracing blockchain. The first hurdle is understanding the technology and its potential applications fully. Many executives still associate blockchain solely with Bitcoin and fail to grasp its broader implications.
Additionally, integrating blockchain into existing IT systems poses a significant challenge. Regulatory uncertainties and concerns about the potential risks associated with the technology add to the challenges.
“The regulation is unfinished and this is of course a problem for banks who are basically run by Regulators,” he said.
Impact on Banks
Despite these obstacles, the potential benefits for banks cannot be ignored. Digital assets, enabled by blockchain, offer avenues for new revenue streams and efficiency gains. He mentioned that “It impacts the way you handle your customers and the products you offer.” Also, Blockchain enables the tokenization of illiquid assets, providing liquidity and expanding opportunities, he said.
Specifically, Lars Jacob highlighted that “it’ll change the way that people borrow money for instance with digital assets as collateral, it’ll change the way they manage risk, it offers new opportunities for banks to sell new products and new revenue streams.”
In light of the changes brought about by web3, bank executives should decide whether to remain passive or take proactive steps to embrace this technology. Bank executives who would decide to sit still and dismiss blockchain as a passing trend should be worried, he suggested. He reiterated that some key industry leaders like JPMorgan and Goldman Sachs are actively experimenting and implementing blockchain solutions.
With their capital and brand reputation, banks can position themselves as key players in this evolving technological landscape.
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