While it’s stereotypically considered the currency of criminals, bitcoin, and more importantly blockchain, have become one of the most popular topics in banking. It’s expected to have the same global impact that the Internet caused in changing how we do almost everything over the past few decades. But what is blockchain, and why is it so heavily discussed today?
Simply put, blockchain is a decentralized, global notary ledger. Any information recorded on the blockchain is transparent, and can later be retrieved, verified, exchanged, transferred, decrypted, or used as a proof of possession, nonrepudiation, or for attestation depending on the use case and context. This transparency is perfect for the financial industry. However, many executives are pushing back on it due to its decentralized and anonymous form. For example, a bank would never loan money to an anonymous source.
Yet, despite being responsible for protecting huge sums of money and personal data, banks are using practices that are risky and allow for human error. One such example is entering and tracking data manually. In some cases, financial reports may only be reviewed quarterly by the CEO.
Blockchain Brings Transparency & Security
The blockchain offers more security and transparency than traditional banking methods since anyone in the C-Suite or the accounting department will be able to access records that show every transaction in real time. Chief financial officers also have the benefit of a scalable and secure ledger with unlimited account creation capacity. It also gives executives peace of mind knowing that its transparency means fraud can be traced quickly, eliminating the risk of employee theft.
Requirements for Blockchain Success
However, the implementation of blockchain will require mass adoption since it can only exist in a peer-to-peer network. The head of each chain must open participation to others who will become dependent on the chain’s success and contribute toward it. Successful blockchains must also serve a wide range of applications and offer open Toolkits, SDKs, test chains, and currencies that allow broad implementation of new applications. They also need to accommodate open identity standards, such as decentralized identity, data item description (DID) documents, and verifiable claims. Additionally, they should quickly acknowledge problems transparently, using a hard form if necessary (e.g., the Ethereum ETH and ETC fork in early 2016).
While it’s a slow start, financial institutions are starting to see the benefit of blockchains. With the technology still in its beginning stages, financial executives will need to consider open identity standards that encourage interoperability of claims across chains, allowing users to take full advantage of all blockchain services, SMEs to innovate quickly, and existing institutions to migrate services easily across chains. We anticipate services and other revenue opportunities to follow in the future as users demand new ways to leverage their digital identities in the blockchain market.