The challenges of using blockchain technology

Luke Graham, News Assistant

Blockchain technology has the potential to revolutionize financial transactions but companies will have to overcome several challenges in order to experience any benefits, according to industry experts.

Blockchain was developed alongside the digital cryptocurrency bitcoin. It works like a huge, decentralized ledger which records every transaction and stores this information on a global network to prevent tampering. Bitcoin, itself, is a virtual currency that allows users to exchange online credits for goods and services.

Several organisations have looked into alternative applications for the blockchain, away from the digital currency. For instance, Nasdaq is trialling a system to allow investors to securely vote in shareholders meetings, while Bank of America has filed several blockchain related patents.


Some of the possible benefits of adopting blockchain include simplifying business processes and creating trusted, safe records of business agreements and transactions, according to Vijay Michalik, research analyst for consultancy firm Frost & Sullivan.

In the longer term, blockchain may even replace law contracts and written agreements with computer code.

"This would challenge trusted third party business models like eBay, Amazon and Uber by creating a way for buyers and sellers to interact safely without the costs of a platform," he told CNBC via email.

"Early forms of these decentralized autonomous businesses are already emerging."

Why bitcoin’s tech could ‘change everything’ for banks

However, businesses may need to be cautious, as Michalik highlighted several issues with adopting blockchain technology.

"The challenges of legacy infrastructure will be the main obstacle. This is coupled with the challenges of technical understanding – the practicality of implementing decentralized cryptosystems falls outside of the traditional IT development skill-set," he said.

"Companies from Consensys and Microsoft to IBM are beginning to release some of the tools needed, but conceptual understanding of its potential is a separate hurdle. "

Market researcher TABB Group has also identified several challenges facing different sectors of the market, which it describes as "insurmountable," in a report published earlier this month.

"While some issues are significant to particular market slices, they may be non-issues for others, and things that may appear easy from the outside, may actually be very challenging," said Larry Tabb, CEO of TABB Group in a press release.

"For example, streamlining the allocations process may appear simple from a brokerage or custodian perspective, but problematic for investors; conversely, clearing and netting is a non-issue for investors while challenging for banks and brokers."

Correction: CNBC has corrected the spelling of the name of the CEO of TABB Group.

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