This is the buzzword right now in technologies and finances: blockchain. The most disruptive technology, something like personal computers in 1975 or internet in 1993, or, as the Harvard Business Review published: the first native digital medium for value, just as the internet was the first native digital medium for information.
But what is it? This article explains it very simply: think about a book where each page is a block with a statement of any transaction. Every time a block is filled and added to the chain (a new page), a new block is generated. Blocks are linked to each other in a chronological order, as pages in a book.
Initially, blockchain was created as the technology that sustained the cryptocurrency bitcoin. Now, banks are investing a huge amount of money here, because they perceive the disruption of this technology.
Blockchain is a huge ledger running on million of devices and it is capable of recording anything of value, as money, equities, funds, bonds, contracts…It is a safe and private peer-to-peer system because trust does not depend on central institutions, but on network consensus, cryptography, collaboration and clever code. What does it mean immediately? It is a risk for intermediaries, essentially in finances. People can sign contracts or exchange assets without knowing each other but being confident that they will not be cheated. Without intermediaries, there will be increasing savings (between $16 and $20 bn a year, from different sources).
Following a report from the international consultancy Deloitte, blockchain has several advantages:
- Disintermediation. Counterpart risk disappears.
- Empowering of users, because they control their information and transactions.
- High quality data, widely available.
- Durability, reliability and longevity, hacker-proof.
- Immutability of transactions: nobody can erase an operation
- Transparency, because block changes are viewable by all parties.
- Simplification: there is an only ledger, not several.
- Faster clearing and settlement transactions, in minutes.
- Lower cost transactions, due to the elimination of intermediaries.
However, this technology has still some challenges. Deloitte mentions that it is a very new technology without any regulation that consumes a great deal of energy from computers. Although it helps save money, it also has huge initial costs. Finally, as it is a new technology, there are still concerns about security, privacy, integration with other systems and the leaning to accept it by the users.
Financial experts say that blockchain will change some processes as know-your-customer, due diligence and anti-money laundering. This banking compliancy costs will disappear. Once a bank did it with a customer, other financial entities will then be able to use it, because this data are under customer control. Several time-consuming processes will disappear (and the attached costs) and the role of the adviser will deeply change. It value will be linked to their knowledge, not to their ability to make transactions. This is only the beginning of the next future and its name is blockchain.