Blockchain. Everyone is talking about it, but do we really know what it is or what effect it’s going to have on society?
In simple terms it is described as a platform that allows the digital distribution of information from one party to another without the information being copied. In more technical terms, the blockchain is a digital distributed ledger, that groups transactions in blocks, with each block connected to the previous block through pointers and timestamps, that verify the time the transaction took place. These links between blocks are protected by cryptography, so once a transaction is recorded and saved within one of the chain of blocks (hence blockchain), it cannot be modified, destroyed or forged.
The implications of blockchain are endless. Apart from the well-known fact that cryptocurrency is traded on a blockchain platform, it can also be used to certify the exchange of shares and stocks, validate a contract or make votes cast in online voting secure and impossible to alter. In the first issue of this 3 part series, we’ll be having a look at how blockchain will disrupt the banking industry and what implications it will have on our everyday lives.
One of the biggest advantages blockchain will offer to the banking industry, is faster bank-to-bank and international transfers. Currently, transferring money from one individual or business to another can be very cumbersome, as it has to pass through an infinite number of highly regulated intermediaries who all take a service charge and as a result, a transfer can take days or even weeks to be settled. What blockchain offers here is a total disruption of the system; By reducing the number of third parties involved and directly increasing security, blockchain offers a cheaper and faster way of transferring funds, directly increasing cash flow and capital investments. Due to its advantages, blockchain is being dubbed to be the alternative to the normal SWIFT payment systems currently being adopted by banks.
Apart from offering banks cheaper solutions to their heft and costly banking system, Blockchain also disrupts another important function of the banking sector - Client Identification. By tracking and managing the digital identities in a secure and efficient way, blockchain solves multiple digital identity problems such as data and information breaches and fraud. The distributed ledger technology on which blockchain operates, enables users to be identified on one single occasion. This information is then stored, securely on the blockchain, with access granted to other banks in the system, again reducing costs, time and also inconveniences. The advantages that this system offers when compared to the more traditional are two fold. Primarily, it reduces costs resulting from data variation across different system of entry and also it reduces the problems of duplicity and misinformation. This is because blockchain sees identity as uniquely authenticated in an irrefutable, immutable, and secure manner using digital signatures that are based on public key cryptography.
Currently a number of banks worldwide are developing and testing beta solutions of Blockchain in various functions, and analysing the implications it would have on the current market. For example Banco Santander is currently working on a blockchain solution for carrying out shareholder voting, and has also implemented a fully functioning One Pay FX payment system running on blockchain. The implications of blockchain in the banking industry are limitless and endless, and are only limited by our imagination.
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