Blockchain is the technology that allows for secure transactions without the need for a central authority. And since banks are central authorities, it makes sense that they might be unnerved. But there are plenty of ways that banks can benefit from blockchain—and not just by using it in back-end systems.

The big question facing banks is this: Will blockchain actually work?

Our answer: Yes and no.

We see lots of potential for financial services firms to use blockchain in their internal processes, but we aren’t so sure about the utility of cryptocurrencies in consumer-facing applications. Instead, we think the most promising use case for blockchain will be as a tool for banks to develop new kinds of products and services, potentially with nonbank partners.

In recent weeks, the cryptocurrency space has been filled with the sound of the blockchain’s potential application to the banking industry. For example, there have been headlines that “Bank of America files Blockchain Patent” and “Chinese Central Bank Is Testing Digital Currency Based on Blockchain Technology.”

However, in my opinion the blockchain will not be used for retail banking. The blockchain is not a solution for data security, and it is not a solution for financial inclusion. We don’t need the blockchain for those things.

Banks already have their own secure networks for sharing data safely and securely, and one of their most pressing needs right now is figuring out how to deal with the customer privacy issues that have arisen following recent data breaches (the most notable of which was at JPMorgan Chase). The idea that they would use an open public ledger instead of a secure private network seems ridiculous to me.

The blockchain could bring about a financial revolution. Yet, many banks are more concerned with the technology’s potential to disrupt their business models than they are excited by its possibilities, says Oliver Bussmann, Group Chief Information Officer of UBS.

The Blockchain is the most important invention since the World Wide Web. It has the potential to replace traditional banking and payment services completely. Nevertheless, current discussions in the banking sector mostly focus on how the Blockchain could threaten banks’ core business with disintermediation and unbundling.

Blockchain technology might be useful for security and transparency, but it’s not clear whether it will help banks save money or win over new customers. The threat of disruption posed by FinTechs coupled with low interest rates means that banks have less money to invest in innovation projects. This creates a situation where banks engage in Blockchain innovation out of fear of missing out (FOMO) rather than because they see a real opportunity to grow their business.

There is no doubt that the financial services industry has become an early adopter of blockchain, and for good reason. There are multiple use cases that can benefit from the technology, including payments, asset management and capital markets. But will this actually work?

Many banks have already begun to experiment with blockchain by creating their own ledgers or running proof-of-concept (POC) programs. Most POCs have a limited scope and are generally run without any connection to other institutions.

However, there are a few consortiums — R3CEV and Digital Asset Holdings — that are working on distributed ledger projects with a much wider reach. The reason behind these partnerships is simple: it is nearly impossible to replicate the entire blockchain ledger system on your own due to the complexity of coordinating with all participants within the ecosystem. Every transaction must be verified by multiple parties, which requires a lot of coordination.

The technology behind bitcoin, blockchain is an open, distributed ledger that records transactions safely, permanently, and very efficiently. Through the use of a peer-to-peer network and distributed timestamping server, a blockchain database is managed autonomously. In the case of bitcoin, and other cryptocurrencies like it, the technology is used to create a digital currency that can be used to make payments of any amount anywhere in the world.

As promising as this sounds, there are still many obstacles that need to be overcome before blockchain can truly be considered a legitimate banking solution. These challenges include scalability (the ability to handle large loads), interoperability (the ability to communicate with other systems), security and privacy (how data will be protected), and data governance (who owns the data).

The bottom line is this: Blockchain may present a revolutionary new way for people and businesses to interact with each other, but we are not quite there yet.

Cryptocurrencies, in particular Bitcoin and Ethereum, are poised to disrupt the financial services industry by reducing costs and facilitating new business models.

The impact of cryptocurrencies on financial services will be profound, but it is not inevitable. To realize their potential, cryptocurrencies must address two major challenges: scaling transactions and providing a stable value store.

Scaling Transactions

By now, we should all be familiar with blockchain, the technology underpinning Bitcoin. It’s a brilliant piece of engineering that allows for anonymous, distributed, cryptographically secure transactions.

Banks and other financial institutions are incredibly eager to harness it for themselves. As reported by Bloomberg, banks spent $1 billion on blockchain projects in 2016. Goldman Sachs estimates that blockchain could save banks $12 billion in infrastructure costs per year.

But there is one fundamental problem: banking requires an irrefutable record of identity. You need to know who you’re dealing with when you give them money. And right now, there is no way to establish identity on blockchain.

There are people trying to build such a system. Many of them are focusing on “proof of authority” systems where blockchains are secured by trusted entities (i.e., the big banks). These solutions may work well for some internal needs within the industry but won’t work for open blockchain systems like Bitcoin or Ethereum. In this case, it would be very easy for one bank to collude with others and rewrite parts of the transaction history in order to claim more money for itself (the Byzantine Generals Problem).

Others are looking into “proof of stake”