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Blockchain in banks a reality in less than 2 years: Blythe Masters

Blythe Masters, CEO of Digital Asset Holdings talks about blockchain technology at Money 2020 in Copenhagen
Seamus Conwell
Blythe Masters, CEO of Digital Asset Holdings talks about blockchain technology at Money 2020 in Copenhagen

Blockchain technology - the backbone of bitcoin - will be used by financial services companies in two years' time but mainstream adoption will take longer, according to an ex-top JPMorgan executive who now runs a blockchain company.

Speaking to CNBC at the Money 2020 conference in Copenhagen, Blythe Masters, who is credited with leading the development of credit default swaps and now is at the helm of Digital Asset Holdings, said that the deployment of blockchain technology is around the corner.

"My view is that we will see this technology in various forms be deployed in a commercial setting in less than a couple of years. That doesn't mean it will become mainstream in that time frame, I think that the time frame that it'll take to get to be mainstream would be five to ten years," Masters said on Tuesday.

Blockchain is the technology that underlies the cryptocurrency bitcoin. It works like a huge, decentralized ledger for bitcoin which records every transaction and stores this information on a global network so it cannot be tampered with. Banks feel blockchain technology can be utilized in areas from remittances to securities exchanges.

Digital Asset Holdings is developing blockchain technology that can be used by the banks. Earlier this year, the company partnered with JPMorgan to explore the technology.

But it's not just the Digital Asset Holdings working with major financial institutions. Another firm called R3 has brought together a group of the world's biggest banks including JPMorgan and Citigroup and is dedicated to researching and delivering new financial technology. Earlier this week R3 partnered with Microsoft to develop further use case for blockchain-like technology.

Earlier this year, R3 piloted a way to trade fixed income assets using the blockchain. And Nasdaq piloted a scheme to allow international residents of Estonia to vote in shareholder meetings even when they're abroad.

The potential of blockchain has been recognized by major regulators and central banks. Still there are challenges for the widespread adoption of the technology.

"There are three factors cited as a concern. Number one: there is the uncertainty around regulation. Number two is the question of the challenge of creating a network effect, having multiple parties having to agree on sharing infrastructure. And the last, number three, is the question of the creation of common standards, so you don't have the risk for an early adopter that they inadvertently selected a solution that became the equivalent of Betamax when in fact the rest of the world goes in the direction of VHS," Masters said.

Some of the skepticism around the technology has come from the connection to the cryptocurrency bitcoin, according to Masters, but there are "reasons to be optimistic".

"They (regulators) are not ambiguously endorsing the concept, they are acknowledging that there are potential benefits that if responsibly pursued could be of great interest to them," Masters said.