To realize its full potential, the industry must avoid the kind of standards war we've seen in the past

Imagine a financial system that is far more efficient than the one we presently have; one that is less expensive to run and less costly to use, yet at the same time more robust and much harder to abuse; and one that gives individuals more control over their financial transactions while better protecting their privacy.

A revolutionary new technology, the blockchain, allows parties to carry out direct transactions without using an intermediary. It does so by providing a means for people to share reliable and tamper-proof lists of information known as distributed ledgers.

It allows firms to do things that they have previously been unable to. For instance, blockchain can allow banks to introduce the real-time settlement of transactions. By adding full programming capabilities to blockchains, we can create "smart contracts", autonomous financial agreements that enforce themselves. We could build "smart wallets" for individuals that allow them to carry out a large part of their financial transactions on their own, and even manage their money for them.

As with any nascent technology there are significant challenges. Some are technical: blockchain today has issues of speed, scalability and security. Some are legal: autonomous smart contracts require a new type of smart contract law. Some are systemic: direct financial transactions will only work if we can move "real money" onto the chain and solve important issues around digital identity and privacy.

To realize the full potential of blockchain, we will above all need to collaborate on a common platform. At UBS, we think it is essential that the industry avoid a standards war of the type that has bedeviled the adoption of new technologies in the past.

The good news is that such collaboration is happening. There are already several significant larger collaborative efforts, like the R3 consortium or the Linux Foundation's Hyperledger Project; and many banks, ours included, have been experimenting intensely with the technology and working with peers in open, collaborative ways. These are all positive steps.

At the moment, China's main initiative in the blockchain space is the China Ledger Alliance, a noncommercial organization focused on research and development of blockchain applications. Led by R&D company Wanxiang Blockchain Lab and similar in structure to the aforementioned international collaborations, it can be considered China's answer to the rapidly evolving blockchain ecosystem.

The aim of the alliance is to adapt and develop existing blockchain technology to the needs of Chinese businesses and set standards across the industry to ensure regulatory compliance to China's legal environment. The alliance counts 15 members, including both financial services firms and technology companies.

Attention to the opportunities that blockchain technology now offers to China was significantly raised at the Global Blockchain Summit in Shanghai late last year. Chinese regulators have developed a strong interest in blockchain since this summit. Also, early this year, China's central bank announced its investigation into digital currencies as an answer to the growing interest of Chinese investors in bitcoin and other crypto-currencies.

Chinese venture capital investments in blockchain have been mainly directed at international companies. However, China is also growing a pool of local blockchain startups. A number of established Western startups are also eying the Chinese market and could extend their offering soon.

It is impossible to say how or when the overall blockchain puzzle will be solved, or what it will look like. But if we manage to build a common fabric, then I believe large-scale transformation of our industry will happen sooner rather than later. With that, many of the things we are only imagining today will likely become reality.

The author is chief operating officer for UBS Group. The views do not necessarily reflect those of China Daily.