Some of you might have heard of Blockchain. You might have read that it could disrupt and change banking, payments and other financial services forever. Perhaps you are wondering how it might affect you, especially if you are employed in the financial services industry.
So let us clear the air to start with. Blockchain is the technology underlying the virtual currency, Bitcoin. But while Bitcoin has received a mixed response, there is widespread interest in Blockchain for a variety of reasons that we will talk about later. Many people believe Blockchain technology could revolutionise banking, payments and a host of allied activities.
Like every revolution preceding it, Blockchain too is giving rise to fears of job loss and redundancy. But actually every revolution in the past – whether it was the development of agriculture or the invention of electricity, radio, railroad or aircraft – has made human lives better than before. It is the same with the digital revolution, which, by giving us the tools of Internet and Mobility, has helped us to become more innovative and efficient, and amplified our potential in countless other ways.
Blockchain is no different. In fact, implemented right, it can deliver a variety of benefits as discussed in the following paragraphs.
Think of Blockchain as a very large, public spreadsheet in which various transactions are noted. A network of people or their representative computers has access to this spreadsheet, and is responsible for validating each transaction by consensus. Once a transaction is certified as genuine and consummated, it cannot be modified, recalled or repudiated. This makes the transaction highly secure.
In this scenario, there is really no need for a central agency, such as a stock exchange or clearing house, for bringing the contracting parties together or facilitating the deal. That means the parties to the transaction can conclude their business safely, securely and largely anonymously, without involving an intermediary. This yields several benefits – the parties have complete visibility into the transaction; there are no commissions or fees; and settlement can happen within seconds.
Blockchain can also be used to secure old-world transactions involving cash and plastic. One only needs to digitize the currency or card and register it on the network. Then, even if someone steals the money or card, they will not be able to transact with it, because the network will reject it as invalid. In India, the Reserve Bank is considering using Blockchain technology to reduce cheque counterfeiting. Digitized cheques can reduce the use of paper as well as the risk of theft and fraud. And if someone who continues to use paper cheques after digitization loses one, they are still protected because no other person will be able to use it.
Property transaction is another very obvious area of application, where everything from land records to sale deeds can be uploaded on to Blockchain for validation and protection both. The same applies to the sale and purchase of financial assets such as securities and insurance.
A very interesting feature of Blockchain is that it allows even very small investors to buy a share in highly valued assets, such as art, for instance. You might know that it is possible to buy a fraction of a Bitcoin, which is currently valued at about US$ 670, and trade it at will. Similarly, every other valuable asset can be digitized and broken into small components using Blockchain and offered to investors who cannot afford the whole.
These are some of the known benefits of Blockchain. As the technology matures and adoption increases, who knows what other possibilities might open up?
This article first appeared in Business Insider. You can access the original article here.