Written by – Rémi Timery
Most of millenials and managers have heard at least once about the Blockchain.
But only a few professionnals really understand its effects.
The Blockchain is a decentralized technology underpinning the bitcoin currency, based on series of blocks that keep track of each transaction that occured: transactions are indelibly saved on the blocks.
Its characteristics permit actors to share data via the network, and have a permanent access to what has been traded.
The technology can be applied to diverse areas and situations : real estate, voting, car renting, or even marriage, such as the couple who recently got married on the Blockchain.
I shall not dwell on the Blockchain in general, as it is not the aim of the article, but more to highlight its impacts in Banking .
The Blockchain is based on innovative aspects, that participate in the development and sucess of the decentralized network.
In the banking sector, asset and cash ledgers are relevant added values. For instance, nowadays, when an individual is looking to purchase shares, undoubtedly he is required to use help of an intermediary (such as a stock broker) : The Blockchain, will make it more convenient, and less time consuming, thanks to innovative features:
Asset ledgers: Testify that each party of the deal is complying with the rules. For instance, if someone (A) is looking to purchase from (B), the asset ledgers will have a role in checking if the seller (B) does really own the assets, and keeps them.
Cash ledgers: Indicates that the purchaser (A) can truly afford buying the stocks. The ledger will keep the funds, then releases them when the trade is completed.
Another important innovative aspect of the Blockchain is the Smart contract.
It is the last condition that needs to be met, in order for the technology to be efficient. Indeed, the Smart contract consists in the validation of all the required conditions, and thus generates the deal, allowing any individual to complete the transaction. The Smart contract represents as the final automated digital signature.
Thereby, the Smart contract permits individuals to save tremendous time, due to its automatisation, and self-verifications.
Verifications lead us to the regulations and banking restrictions, such as the Basel III, which inter alia forces financial institutions to own a minimum capital requirement. In this case, the Blockchain allows entities to comply with the tight banking regulation, as the Smart contract cannot be activated if the conditions are not met (minimum capital requirement can be overcome thanks to the cash ledgers).
Nonetheless, these innovative features will deeply amend the functionning of the existing system. Undeniably, the fact that two types of ledgers can attest that both parties are able to finalize the transaction will make the role of regulatory institutions obsolete, such as the clearing house.
Furthermore, as the technology allows users a direct access to the market, jobs with such characteristics may seem less and less relevant.
Obviously, the Blockchain is based on technology, and thus highly linked to the way individuals make use of it. Therefore, here is another weak point of the network, as it exposed to many dysfunctions, risks of hacking, or even power shortage.
Can we really trade million of dollars via a technology that could be hacked? The C.I.A website has already been hacked, so what guarantees that the Blockchain will not be?
In 2016, a Venture Capital fund that operates via the Blockchain has been hacked for $60 Million…
So far, the Blockchain is one of our century’s technological breakthrough, allowing users to trade, and operate in a much more convenient way. Nonetheless, it seems like this innovation may reinforce the digitalization of our era, and job loss phenomenon.
Lastly, the technological aspect of the Blockchain may lead authorities to create a competent service to supervise and regulate its use, by creating a «digital authority» specialised in the Blockchain.