Blockchain technology is finally "moving beyond the hype." Or so Goldman Sachs (GS) hopes.
That's the title of a new Goldman Sachs Research report on the potential use cases for blockchain, the decentralized ledger technology that came around with the digital currency bitcoin. (Quick crash course: The bitcoin blockchain is open-source, public, permissionless, and anonymized; what banks and financial institutions now want to do is use alternate blockchains that, in most cases, would be closed, permissioned, and offer a more controlled environment.)
The idea of bank blockchains got hot in the last year, and a number of startups have rushed to service those on Wall Street looking to try the tech to improve efficiency and reduce friction in their processes. More than 45 banks have signed on to a blockchain consortium called R3 CEV, while separately, companies like Chain have created bankchains for big-name clients like Visa and Citi.
The Goldman report comes up with five "real-world scenarios" for blockchain where "the dollar benefits start to become apparent."
1. Sharing economy
Blockchain tech could promise a secure and superior system for record-keeping and managing digital payment history—all very relevant to companies like Airbnb or Uber. One of the earliest popular sound bites in the bitcoin world, in fact, was the idea that the blockchain could offer a "decentralized Uber," a way to have riders order and pay a driver over the blockchain, all without using a middleman like Uber that takes a cut to connect rider and driver. (Of course, there are a number of obvious problems with a decentralized ride-ordering service, such as where you'd turn to settle price disputes or for safety emergencies.) "We believe blockchain could help accelerate the adoption of P2P lodging," Goldman says, "and generate $3-$9 billion in incremental revenue opportunity through 2020."
As you know (from your massive monthly electricity bill), most homeowners and renters rely on power from big central utilities. But some people are moving toward rooftop solar panels or battery-generated electricity, and that means they could potentially act as power providers to others. Goldman imagines blockchain helping to "facilitate secure transactions of power between individuals on a distributed network who do not have an existing relationship." It could be as much as a $7 billion innovation, the report estimates.
3. Property title insurance
Here's another truth well known to you if you own a car, or a home, or any other property you've insured: The title search process is arduous and expensive. High fees abound. If the process of title insurance is taken to the blockchain, it could reduce the costs of the provider, and in turn the fees passed on to you, "by reducing errors and manual effort," Goldman says. (To be sure, this bullet point in the Goldman report seems like it could have been subbed for any financial transaction at all; insurance is hardly the only process where delays and human error can be reduced to lower costs and fees.)
4. Trading stocks
This is the use case that has most commonly been touted by the folks in banking looking to try blockchain tech. An estimated 10% of stock trades are subject to small human eror in the process, which can make a stock purchase or trade take longer to settle. The appeal of blockchain is in speeding up such transactions. By using blockchain to record the clearing and settling of equities trades, Goldman estimates the industry could save some $12 billion in annual costs "by moving to a shorter, and potentially customized, settlement window."
5. Preventing money laundering
This may be the least sexy of these five scenarios, but blockchain tech could help with KYC (know your customer) and AML (anti-money laundering) compliance efforts. By storing your account information on a closed blockchain, it could reduce the number of invalid or fraudulent transactions that get through.
Of course, all of this is still theoretical. And those in the bitcoin world, where the idea of blockchain began, are deeply skeptical about the true potential for banks to use closed blockchains; they argue that the entire appeal of blockchain technology is its openness.
Goldman knows that there are many "ifs" and "buts" to the bankchain movement. In a section devoted to "What could go wrong," its report highlights four main areas that could be problematic for blockchain adoption, including privacy issues and the challenge of adopting widespread standards.
So the question remains the same, and Goldman asks it overtly: "When will blockchain really start to matter?" Goldman's answer is 2 to 5 years for "limited market adoption," and maybe more like 5 to 10 years for "broader acceptance."
Of course, bitcoin believers outside the banking world would retort that blockchain already does matter.
Daniel Roberts is a writer at Yahoo Finance, covering technology and sports business. Follow him on Twitter at @readDanwrite.