Blockchain technology, the protocol behind bitcoin and digital currencies, also known as ‘distributed ledger’, allows financial institutions (for example) to:
see who had it (a particular amount of money), who owned it, the fact that they actually committed to each other electronically and signed it with crypthology to ensure that it was authorized. You could see all those things, and importantly, again, by having that all being done in a set of digital transactions, it enables it to happen in a much shorter time frame, so it also reduces a lot of what today are the delays which create other types of risk in the settlement cycles, which need to be compensated for in other forms.- Don Duet, co-head of the Technology Division at Goldman Sachs in its podcast on “The Digitization of Finance”
Therefore, transactions tracked via blockchain, not only make them more transparent, but they also reduce errors and cost, since the transaction touches ‘less hands’ (as explained on one of my prior posts).
Recently, we’ve started to see a few key companies and countries adopting blockchain technology, like:
- Australian stock market – hoping to reduce the time it take to settle ownership of shares
- Honduras – tracking land titles
People’s Bank of China – with the intention to ‘help reduce high costs of circulating traditional currencies, … boost the convenience and transparency of transactions, reduce money laundering, tax evasion and other criminal acts’- CNN Money
- Nasdaq Private Market introduced its own blockchain system to keep records of trading shares in the pre-IPO phase before a company goes public, announced last year
As we look into the future, it’s clear that blockchain will do for payments what email and texting did to communication. It’ll bring efficiency and transparency, and its easy implementation will expand its reach beyond currency to all types of digital transactions. A few applications include:
- Smart Home and Internet of Things, where consumers’ privacy won’t be shared with third parties since all that will be needed for validation will be recorded in a blockchain ledger (more on that in a separate future post)
- Medical records and wearable device tracking, especially in elderly care
- Safer cloud information sharing, where anyone trying to access it would need the right encryption code to pull information from it
- Copyright – An artist would be able to track where his/her work is being used all around the internet
- A credit card transaction will no longer depend on a person’s credit and need 6 steps to be concluded, it’ll rely on a blockchain ledger which will confirm that the person has the funds to make that transaction. There’s a multitude of reactions from the key players: Mastercard, Visa, American Express and PayPal. They vary from skepticism to somewhat acceptance. But what I’m not hearing from them is the excitement for what disruption blockchain will bring (yes, it will bring, it’s just a matter of time) to their industry. This could mean a few things: One, they could be working on a very secret disruptive product; Two, they could be neglecting it; or Three, there will be an up-and-coming player who will revolutionize the credit card transaction industry by storm and do some serious damage.
As it relates to the credit card industry, I guess time will tell, but if we don’t hear about ‘One’ by the time Money20/20 comes around, you can probably guess where my bet is!