R3's take: Blockchain in 2021: Steady progress beyond the hype

Anyone who still sees blockchain as a solution in search of a problem is out of date—use cases abound. Central Bank Digital Currencies (CBDCs) continue to gain momentum, says Richard G Brown, Chief Technology Officer at R3 and contributor to our Fintech 5X5 Report

Blockchain technology is used for post-shipment trade financing, to create issue and approve letters of credit, to underpin bank reconciliation. However, there remains a perceived slowness of blockchain deployment in real-world environments. In many areas, the technology is ready, and we are waiting for the ‘soft’ systems to catch up.

Blockchain is changing the way parts of these businesses function, and that requires new procedures, training for staff and the support of regulators. All this takes time but is happening at pace in countless different industries. It might not make for the best headlines, but slow and steady is the only way to deliver sustainable technology change. Unlike cryptocurrencies that are grabbing headlines through fast gains and crashes, blockchain in 2021 is an ongoing story of reliable, steady growth.

But how does this apply to data security in the world of fintech?

As we head into 2021, we’re beginning this same process in the lifecycle of a previously niche technology, Confidential Computing. It was those working on enterprise blockchain projects who have helped propel it into the mainstream, but the impact will spread far beyond as it helps us deliver on the promise of securing a business’s data while in use.

Aren’t security protocols such as HTTPS already meant to protect us like that? Well, you might assume that, but no. Have you ever stopped to ask yourself what that little green security padlock actually means?

This padlock is present when you browse sites like Facebook, and yet aren’t they appearing in the news regularly accused of “selling” or “misusing” your data?

The answer, of course, is that the padlock is there simply to ensure you really are logged in to facebook.com and not some other site. And it ensures that nobody can intercept your private information as it flows back and forth between your computer and Facebook’s data centres. This is important, of course, but notice how that padlock doesn’t tell you anything about what Facebook will do with your data once it arrives.

‘The way that data is used by social media sites has been a concern to consumers and regulators for a long time.’

The way that data is used by social media sites has been a concern to consumers and regulators for a long time. There have been recent consequences, with users abandoning WhatsApp—owned by Facebook—in favour of Signal and Telegram. Fintechs should take note. They might currently enjoy the trust of their customers, but that trust is fragile and needs to be protected.

This is where Confidential Computing comes in. This technology makes it possible to check what program is running on somebody else’s computer before you send your information, and to be sure that the owner of that computer can neither influence nor observe what’s happening. And it’s going to utterly transform how we think about data security.

What does Confidential Computing have to do with blockchain?

What if firms need to gain collective intelligence from data that needs to remain concealed? Blockchain on its own has no answers to that question. But by integrating an adjacent technology – such as Confidential Computing – this challenge can be overcome.

The last five years of enterprise blockchain development have shown we can solve problems for entire markets in a way that we couldn’t in the past. Just look at some of the market-wide initiatives that are already live – Spunta Banca DLT for interbank reconciliation in Italy, B3i for the global insurance industry, and Contour and Marco Polo for trade finance. But that’s not to say it’s easy bringing so many different players together – in fact, it’s been much harder than many of us anticipated, and taken much longer. But it is possible – and the live use cases of this technology continue to grow.

‘Imagine if a bank or fintech actively gave up its freedom to see your data by deploying Confidential Computing. Isn’t it possible it would actually grow its market share? Would they not quickly become a market leader? ’

Ever since blockchain firms began working with clients on tackling their challenges with blockchain technology, there would always be someone in the room that would say: “you don’t need a blockchain for that!” And sometimes they were right. In some scenarios, firms needed to collaborate at a market level but not everyone’s records needed to be synchronised.

The challenge was sometimes to bring together data to extract insight but without anybody seeing anybody else’s information - and this is what Confidential Computing is able to achieve. The combination of these two innovations enables collaborative data processing without giving up privacy.

Imagine if a bank or fintech actively gave up its freedom to see your data by deploying Confidential Computing. Isn’t it possible it would actually grow its market share? Would they not quickly become a market leader? Confidential Computing means that fintechs can gain insight from their data, and their partners’ data, without even having direct access. People are increasingly wary of their data being used and examined, even though they happily sign up to this when they click through a pages-long agreement—why are the ads shown spookily perceptive? If fintechs can gain insight while keeping a safe distance from sensitive data, they will reassure both regulators and the public, gaining on the trust they have already built.

And that’s why the convergence of blockchain and Confidential Computing is my tip for 2021’s most meaningful development in financial technology. It will be the table stakes for anyone processing other people’s data in a few years’ time, but those who master it in 2021 will enjoy an amazing period of competitive advantage as the only ones in their industry who can make data security promises to their customers that their competitors could only dream of.

Read the full article and more on how tech will impact fintech over the next 5 years by downloading our Fintech 5X5 Report here >