US bank Citi has released a new report discussing how fintech revolution is forcing banking system to a tipping point. Titled “Digital Disruption”, the report among other things, tries to answer the question “Blockchain: The Next Big Thing?"

It says that blockchain technology has the potential to replace the current payment rail of centralized clearing with a distributed ledger for many aspects of financial services, especially in the B2B world. Its features including decentralization, programmability, and immutability are the key “positives” that the technology offers.

However, the report also notes various “negatives” associated with the blockchain:

• Lack of Scale: High marginal cost relatively to existing systems (e.g. Visa or SWIFT) because of a lack of scale and network effects at the moment.
• Bleeding Edge: The technology is not mature relative to the current financial infrastructure. Robustness for large volume transactions is yet to be developed.
• Inherently More Costly: A distributed ledger system is more costly to operate than a centralized system (higher computation power required).
• Consensus: Without an intermediary, a super majority is required to reach consensus. The design of the consensus mechanism affects transaction speed

“[E]ven if Blockchain does not end up replacing the core current financial infrastructure, it may be a catalyst to rethink and re-engineer legacy systems that could work more efficiently”, it added.

The report further discusses the various advantages of the blockchain technology such as disintermediation, speed and efficiency, automation and certainty.

“If the Internet is a disruptive platform designed to facilitate the dissemination of information, then Blockchain technology is a disruptive platform designed to facilitate the exchange of value”, it said.

Turning its focus on use cases of the technology, the report says that determining the optimal use case is often the most challenging part of Blockchain adoption. It points out that in the financial world, the technology could be applied to cross-border payments, financial securities and trading, auditing and compliance, insurance and much more.

“Blockchain for markets and securities could take a long time to reach industrial scale. There is no common protocol that participants agree on. Even when a common protocol is established, investment and time will be required to build the Blockchain network to industrial scale”, it added. “The application of Blockchain in trade could take even longer time than markets and securities, not least because the current legacy system works, but also because ‘trust’ is often required for a trade to occur. The dealing parties could prefer a trusted intermediary. Banks will continue to play a key role in this trade process”.