Goldman Sachs has recently released a report on blockchain, investigating the potential of the technology to revolutionise different market areas and to determine how effective its use might be in reducing the time, cost and complexity of processes that are currently used. Goldman Sachs highlighted the main benefit of blockchain being a distributed ledger to decentralize markets and undermine the control of existing middlemen.
In order to understand the actual benefits that companies might experience by harnessing blockchain technology, the report explored a range of specific real-world applications from a cross section of markets and industries, including travel, energy, real estate, and finance. The study noted the specific abilities of blockchain and some examples of companies which are using them to disrupt the market, with players like Airbnb, Factom and Ripple mentioned as examples of early adopters. Comprising the majority of the report were seven use cases to demonstrate the expected effect of blockchain technology in different markets. One opportunity that was also mentioned in the report was the potential to create new markets by uncovering untapped sources of supply.
According to the report, Goldman Sachs believes that blockchain will be an effective choice in reshaping businesses that are weighed down by inefficiencies, and for enabling new business models based on distributed marketplaces and technology, due to its transparency, security and efficiency.
These advantages could be put to good use by facilitating secure, de-centralized transactions among many parties in the Internet of Things, reducing fraud and increasing trust with increased security, and increasing transparency and efficiency in multi-party transactions.
The case studies that were carried out consisted of:
Case Study 1: Accelerating the Sharing Economy with reputation management
Case Study 2: Building a distributed Smart Grid with blockchain
Case Study 3: Reducing transaction costs in real estate title insurance
Case Study 4: Capital markets – US cash equities
Case Study 5: Capital markets – Repo
Case Study 6: Capital markets – Leveraged loan trading
Case Study 7: AML and KYC Compliance
In these case studies, Goldman Sachs found that increased efficiency, reduced time investments and improved security would lead to substantial savings which ranged from $2 billion to $12 billion annual savings depending on the case study.
Examples of possible areas of substantial savings included reducing the percentage of “suspicious” financial transactions that end up being false positives upon manual review by up to 99.9%, and a potential $50 billion of capital savings in repo markets from centralized clearing and netting, partly enabled by blockchain.
On the subject of blockchain adoption, the report stated it expected to see early-stage technical prototypes within the next two years, with limited market adoption in 2-5 years and broader acceptance in 5-10 years. The areas that blockchain is currently disrupting were noted as including custody banks and clearing houses, title insurers, utility companies, the hotel industry and specialty compliance software vendors.