Blockchain is the latest transformative technology that will either save, or destroy, the financial industry. Consider some of the recent headlines:
- Blockchain Can Cause $150B Revenue Loss to Banks
- As a blockchain-based project teeters, questions about the technology’s security
- Why Blockchain is the savior of the finance industry
Needless to say, it’s easy to understand why people are confused about blockchain: is it going to save the financial industry or cause its demise? The answer is…neither. Blockchain is what people do with it, it is not a force unto itself. Collectively, we need to stop overhyping the technology and approach it with a healthy balance of skepticism and optimism. In order to do so, people need to better understand what blockchain is, so here are the things you need to know about the technology:
What is blockchain?
Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network. Each participant in the network can manipulate the ledger without a need for central authority, and the data elements are encrypted and securely stored. Once data is presented as a candidate update on the blockchain ledger, and there is consensus among the participating nodes in the blockchain that the update it valid, the update is recorded and it’s impossible to alter or remove. What this means is that all the transaction participants (and possibly others, depending on the implementation) have a complete, accurate and shared view of the transaction.
Why does it matter?
It eliminates the need for a middle man and/or third party authorization and prevents records from being altered, deleted, or adding new ‘rogue’ transactions. Not only does it vastly improve privacy and security, blockchain cuts down the costs and time of transactions. For example, financial trades are often verified by a central clearinghouse that maintains its own ledger. This process takes days to verify the transaction and the clearinghouse charges a fee, but blockchain eliminates that need by allowing each bank to use its own ledger to communicate with one another. With blockchain, each party has a trustworthy and accurate record of transactions they are certain will agree with everyone else’s record of completed transactions. You could think of it as a shared tickertape of truth – all the transaction participants have a true, complete, independent and unalterable record of completed transactions
Just last month, Canada’s ATB Financial transferred $1,000 to Germany’s ReiseBank in a matter of seconds by using blockchain technology. Without blockchain, the transaction would’ve taken two to six business days (in addition to costing a substantial a processing fee).
In a world without digital trust, blockchain allows participating parties to transfer data or value with assurances that:
- The data comes from the authorized source
- The data goes to the authorized destination
- Validation that each party is who he/she claims to be.
This on its own is incredibly powerful and revolutionary. However, it’s still too early to predict blockchain’s full potential. Does it have potential to revolutionize technology as we know it? Yes. Will it solve all of the financial industry’s issues? No. One thing is for certain: there are exciting blockchain developments ahead, and SecureKey will be a part of it.