Blockchain Explained: The Tech Banks and Startups Are Raving About
Six years into its existence, bitcoin still sits on the fringes of the financial world – but blockchain, the distributed ledger software that underlies bitcoin, is gaining traction among FinTech executives and big bank C-levels alike.
This month, Digital Asset Holdings CEO Blythe Masters raved that the technology could save major financial institutions billions of dollars, while at the same time making transactions more efficient and error-free. In June, Santander InnoVentures head Mariano Belinky said the world’s tenth biggest bank had identified roughly two dozen use cases for the tech.
The buzz continues to grow – but what exactly is the blockchain? And why should we care?
Imagine that your coworker – let’s call him “Ben” – offers to grab you a burger on his lunch break, and you give him a ten-dollar bill before he leaves. Then, Ben returns with your burger in hand, adamant that you haven’t yet paid him. If nobody had witnessed the initial exchange of cash, you’d be doomed to an awkward argument (and very possibly no lunch). But if multiple coworkers can separately confirm that they witnessed you pay Ben, that consensus can save you from being swindled.
The bitcoin blockchain is a digital ledger that contains a record of every bitcoin transaction ever made. A global network of isolated computing nodes reach a distributed consensus on each transaction’s data as it is made, rendering the power of malicious or inaccurate software moot. “Ben” may be dishonest or forgetful, but he’s unable to rip you off when a majority of other sources deny his claims.
Once a transaction is completed, data is permanently entered into the blockchain and cannot be edited or erased. As concerns of Internet security grow, the tech offers a transparent safeguard against fraud – and major players in banking, tech, and other industries are rushing to capitalize on the software.
Bank On It
You might imagine global banks are racing to bring blockchain’s tech into financial markets, and they are – but many of them are actually working together. FinTech startup R3 is leading a consortium of 22 banks, ranging from Bank of America to Deutsche Bank, that are developing a framework to use the blockchain for global finance.
Within the consortium, some banks are developing their own internal blockchain software – Citi, for instance, has constructed three blockchains while developing its own cryptocurrency, ‘Citicoin’. Citi also joined Nasdaq, Visa, and other investors in a $30 million funding round for blockchain developer platform Chain.com last month. Founding R3 member Barclays, meanwhile, is funding more than 45 experiments with blockchain tech.
Off The Chain
Many see blockchain software making a major impact far beyond finance – BitNation, for example, is a blockchain-based initiative that allows refugees to create a digital identity and prove who they are. Los Angeles startup Verisart is using the blockchain to verify the authenticity of art. Stampery is looking to use to the blockchain to protect and certify sensitive documents. And earlier this month, British singer/songwriter/technophile Imogen Heap released the first ever song on the blockchain.
All this week, we’re presenting the best in FinTech, in partnership with SoFi.
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