By Janhavi Hunnur, Staff Writer
Widely known as the technology behind Bitcoin, a digital currency, blockchain technology carries a wealth of potential to revolutionize the way we live and conduct business. Using cryptography, blockchain provides a decentralized database, or a ‘digital ledger’, of transactions that all transacting parties can see.
The network is a series of computers that must approve the transaction before it is recorded. It is the first native digital medium for peer to peer exchange of value. Trust is hard-coded into the platform and thus its also called the Trust Protocol. Once recorded, there is no manipulating the course of transaction.
The implications of blockchain are substantial:
- Cost benefit – Most financial services processes face operational inefficiencies because separate transactions are taking place among each transacting party. Implementing crypto currency would substantially reduce the risk and cost and reduce transaction time by a great amount.
- Risk Benefit – Fragmentation of security could affect spikes in ‘trade fails’ during market stress. For instance, if A owed B, B owed C, C owed D, it might take time to realize that because A might not be able to pay B, C might not be able to pay D in the future because there is no way to trace back down the alphabet. In case of a mutually distributed ledger, the transparency in the transaction would deter unwanted risk.
- Execution Speed – Mutually distributed ledgers can use smart contracts (computer protocols that enforce the negotiation or performance of a contract) in accordance to business procedures. Since these can be customized on a contract-by-contract basis, transactions can be carried out by eliminating counterparties and intermediaries. This translates to trades and contracts potentially being executed at a much faster rate because the middle parties are replaced with technology.
- Devilish Details – Implementing a blockchain would be specific to each industry and company. Having no standard protocol to begin with, this technology makes it secure and the transparency in the system would be hard to toy with.
The Bank of England believes that implementing blockchain technology would increase the UK’s GDP by 3%. By implementing a digital currency, tax rates, interest rates, and transactions would be automatically lower. It would stabilize economies, giving central banks another means to control their currencies.
Social inequality in terms of income would benefit in a profound way when wealth can be redistributed in terms of value. This technology that is causing a paradigm shift is not only being invested by banks but has also caught the attention of Silicon Valley and budding start ups.