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What Needs to Happen Before the Financial THE FUTURE FINAINnCIAdLuINsFRtArSTyRUACTdURoEptsSmartContracts?FJEABNRUUAARRYY 22001188
The technology behind smart contracts is evolving rapidly. Basic smart contracts with functionalities such as multi-signature payments, escrow services, and so on are already in place (see “What do smart contracts
When will mainstream adoption of smart contracts occur in the financial services industry? Perhaps
enable today?”). However, there are several challenges that need to be overcome before complex smart
as early as 2020, according to Capgemni Consulting, based upon discussions with industry
contracts can become mainstream (see Figure 7).
experts.
Figure 7. Key Challenges Hindering Smart Contracts Adoption
KEY CHALLENGES HINDING SMART CONTRACT ADOPTION
Technological Challenges
Privacy and Security
of users and transactions
Source: Capgemini Consulting Analysts Source: Capgemini Consulting Analysis
Legal Challenges
Common Challenges
Organizational Challenges
Inflexibility
of smart contracts
Scalability
in speed of execution
Interoperability
with legacy systems
Governance
of blockchains
Lack of Talent
in smart contracts
Regulatory Challenges
in applicable laws
Roberto Mancone, MD and Global Head Disruptive Technologies and Solutions at Deutsche Bank AG said:
Interoperability with Legacy Systems
trusted external data sources if they are to utilize
external information. Smart contracts can achieve
and External Data
this with the help of oracles – programs providing
I think any product that a smart contract can manage, can be developed
without waiting for readiness on a distributed ledger technology (DLT), and it
Smart contracts need to be integrated with the
smart contracts with the data they need from the
could be viable by the end of 2018. For instance, smart contracts can record
industry’s existing systems, raising significant
questions about the effort involved and the
and reduction of operational ovefrohuenadderinatnhde CinEteOr,nasml baurstcinoenstrsacptr.coocmess–eas startup
specializing in building oracles – outlines how
investment that will be required. Thomas Hardjono,
integration is a cost item,” he says. “And people evaluate the ROI by also building in this cost of
“Most contracts have something to do with data
external world or carrying the commands they need
loan originations through contract digitization, self-execution of contracts
to send to other systems. Sergey Nazarov, Co-
during its entire life cycle. After this stage, when the financial industry will
CTO at MIT Connection Science, believes that it is
connectivity with real-world data will be key. “We have consensus on the DLT, the smart contract used for the origination can
a key cost component that needs to be factored
i n e a r l y o n . “ W h e n a c o b me p f u a n r t y h , e a r b e i x g t e b n a d n e k d o f r o a r r b e i g p a c k a g i n g a n d t r a d i n g o f t h e s e l o a n s i n a c a p i t a l
company is trying to bring in new technology, this
market environment that will be ready for a DLT environment.”
have been focusing on creating smart contracts that are able to deal with real world data,” he says.
that comes from the external world – shipments, John Whelan, Director of Innovation, Banco wSeaanthaenr,determ, spaeidra:ture, customs etc. To handle that
integration. So, with blockchain technology how
data, a smart contract network is going to need Oracles to connect smart contracts with secure
is this going to work? What is the capital cost to
businesses running this? Is it worth it?”34 Smart
W e ’ r e a c o u p l e o f y e a r s a w a y f r o a mn d i n r - e p l i r a o b d l e u c d t a i o t a n s s y o s u t r e c me s s . ” i n T a h b e a r e n k a r o e r a s u g b r s o t u a n p t i a l
contracts will also need to be able to work with
35
challenges in connecting to such external oracles in
of banks. We may see some small pilot-scale implementations in the next 12
months, but for mainstream we are two to three years away.
a reliable way.
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