Executive Summary

Blockchain, also referred to as distributed ledger technology (DLT), has captured the attention of financial services.

In the most comprehensive study to date, Greenwich Associates assesses the current state of blockchain adoption across banks, brokers, asset managers, exchanges, and technology vendors while also capturing the opinion of the leading blockchain technology companies.

Although companies have only recently begun to experiment with the technology, some important trends are beginning to emerge.

In our previous paper, Blockchain Adoption in Capital Markets, we discussed the current state of blockchain development and implementation, and assessed practitioners’ opinions around most applicable use cases and the leading blockchain technology companies. In this follow-up paper, we delve into some of the more technical considerations that are drawing debate within the blockchain/distributed ledger technology (DLT) community: consensus mechanism and security.

Emerging Consensus

One of the fundamental innovations in blockchain technology is its ability to verify transactions without the need for a third-party intermediary. For assets digitized on the blockchain, cryptography is used to identify and secure ownership of the asset. Nobody can steal or copy the digital asset unless they have the secret code or “private key” that unlocks the cryptographic protection on the asset.

When a trade occurs on a blockchain, the seller supplies their private key to unlock the asset and transfer it to the buyer, who then uses their private key to cryptographically lock and record their new ownership of the asset. This process must occur without either party revealing their private key.

This is where the consensus algorithm comes in. With the digital assets recorded in a distributed ledger, all participating members or “nodes” with a copy of the ledger can see who owns what. The consensus algorithm—using more cryptography—allows participating nodes on the blockchain to verify that the seller owns the asset they are selling and then record the new ownership of that asset to the buyer. There are a few different consensus algorithms being used in blockchain technology, which are described in high-level detail in the sidebar that follows.

Truly appreciating how these different protocols work requires Ph.D.-level understanding of cryptography. However, while it is not necessary to understand the intricacies of consensus protocol, an awareness of how these protocols came to be, as well as their strengths and weaknesses, is critical to their deployment for capital markets applications.

For example, the solution used in the bitcoin blockchain is generally viewed as inappropriate for financial services because of its high energy use, low throughput and slow verification times. So the question is: Which of the other known methods of achieving consensus across a distributed network is most applicable to the permissioned blockchains in development for capital markets?

There is no clear answer, and opinions differ widely. In fact, over 40% of our study participants, the majority of whom are blockchain decision-makers, do not feel qualified to answer. However, the feedback from blockchain technology companies—those with the Ph.D.s in cryptography—appears to indicate that the industry is leaning toward Practical Byzantine Fault Tolerance (PBFT). Note that our survey excluded proprietary consensus algorithms utilized by a single firm, such as the Ripple consensus algorithm.

It should be noted that these different technologies are largely untested in a DLT context. As industry proofs of concept (PoCs) develop further, blockchain companies will continue to customize the consensus algorithms they use based on feedback from their trials. Indeed, as this is an emerging field of academic inquiry, we may even see entirely new protocols being developed.

Transaction Confidentiality Tops Security Concerns

Any new technology in capital markets will need to pass a rigorous security review by compliance, technology and risk management teams within financial services organizations. Following the $81 million hacking of the Bangladesh Central
Bank via the SWIFT network and the attempted attack on the DAO (an investment fund built using smart contracts on the Ethereum network), these considerations are now even more front and center. These incidents and their implications are outlined on the following page.

Security is a major concern for those implementing or thinking about implementing DLT in capital markets. Securing private keys was cited by 52% of study participants as a major concern. Private keys can be thought of as passwords: If bad actors gain access to a private key, they gain access to the assets assigned to it on the blockchain and could potentially steal or transfer them to another address.

Entities can protect their private keys either by storing them in multi-signature wallets, which typically require three different signatories to unlock them, or in ”cold storage,” whereby the keys are saved in a computer or device that is not connected to the internet and, thus, cannot be compromised by hackers.

The cryptographic algorithms themselves are generally considered secure and not a major security risk. The bitcoin blockchain, for example, has never been hacked and is generally considered unhackable. To take over the bitcoin blockchain would require a hacker to gain control of 51% of the nodes on the network, which currently has 19 million petaflops of computing power (by contrast, the fastest supercomputer can run at about 125 petaflops). Alternatively, to correctly guess the private key associated with a public address, and thereby steal the associated bitcoins, has a probability of 1:1077.

However, the biggest security concern among financial institutions is transaction confidentiality. Recall that a blockchain is, in fact, a complete record of digital asset ownership and transaction history. To many, this is seen as a big advantage—the blockchain can essentially represent a consolidated audit trail (a goal of the SEC since the 2010 flash crash, which has yet to begin development and could cost as much as $3 billion). However, that level of transparency worries many market participants who feel it is not appropriate for all markets.

Some products that are currently traded over the counter (and are among those currently being tackled by PoCs), do not report trades in a timely fashion if at all. If transactions were verified on a blockchain, all participating nodes on that blockchain would have access to the transaction details. Put another way, banks would be able to see what trades their competitors were doing at what price; in some markets, this could be putting them at a disadvantage. Indeed, among banks and brokers, sentiment was stronger (63%) that this was a major security concern.As such, it is not surprising that blockchain technology companies such as Digital Asset Holdings, Chain and R3 CEV have introduced functionality that allows for distributed ledger consensus while preserving data confidentiality.


As a new technology emerges and is adapted to real-world use cases, specific technological questions materialize that need to be addressed by the wider community. Greenwich Associates research has shown that the market is concerned about potential security implications around distributed ledger technology but must understand it more fully and develop appropriate solutions before it can replace existing systems and technologies.

In addition, the recent attack on the DAO highlights that there are “unknown unknowns” when it comes to DLT security. Only through further experimentation, development and collaboration will the community be able to identify vulnerabilities and design solutions.


During March and April 2016, Greenwich Associates interviewed 134 global market participants working on blockchain technology to assess the current state of blockchain adoption in capital markets. Respondents included representatives from a broad array of different organization types, 89% of whom were either key decision-makers or actively involved in blockchain initiatives.Out of those respondents who told us their companies were focused on blockchain, 98% identified as decision-makers or actively involved in blockchain initiatives.