FinTech more promising technology: The Blockchain

What is a blockchain…

From Wikipedia: “A blockchain is a distributed database that maintains a continuously growing list of records, called blocks, secured from tampering and revision. Each block contains a timestamp and a link to a previous block. Through the use of a peer-to-peer network and a distributed time stamping server, a blockchain database is managed autonomously. Blockchains are “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.”

Source: Pwc, How the Blockchain works

The Blockchain will transform the way trust is built in our society. In the modern society, the trust usually comes from a third intermediary, such as a bank for transactions or a Municipality for  your ID Card. In fact, the blockchain works as a digital peer-to-peer public register, that cannot be altered, at a very low costs and distributed in the whole world, so that everyone as an immediate access to it and can share information through it.

This technology makes possible to push down all the costs associated with the protection of a certain data. For example, in the case of a transaction, the bank ensure it and bear the risk of insolvency of the payer, so the bank asks for a fee associated to his role of trustee. In a future with the Blockchain, we will have a public ledger where all this kind of informations are freely available to everyone as access to it and globally visible. We can compare the Blockchain to Wikipedia few years ago, a shared asset, for free and managed for the public interest.

It will substantially lower the management costs related to IT, middle and back office, especially for financial institutions. In order to give a sense of the magnitude of this revolution, think that, yearly, the IT division of financial institutions costs around 1 trillion (almost 1% of the Global GDP). Furthermore, for traditional banks, the cost associated to the lending activity is in the order of 3 to 4 percent of every loan, and the Blockchain is going to almost erase it. Once you will have a single peer-to-peer platform, all the people involved (borrowers and lenders) certify each other trustworthiness making obsolete a central institution (the middle-man) working as an intermediary.

Therefore, the savings associated with the technology in this sector are tremendous. As I see it, almost all sectors can benefit from it in different ways though, think about insurance premium, the network may be able to know if you are a trustworthy driver based on historical data. And not only private companies but governments too, they can lower management costs and instead spend money on investments for the public interest.

Source: BTCS.com

Up to now, two countries have started a so-called beta test using the Blockchain Technology. In Australia, since last year, the Stock Exchange have started to implement the Blockchain for all trades, dramatically lowering the costs of transactions. The other place where a country is helping a beta-test is in Estonia and this time among the banking system. But it could take time before a full implementation of it. As I see it, it would take 5 to 10 years in order to see it.

The promises of this revolutionary technology are similar to the Internet in the 90’s, someone could be skeptical at this stage but sooner or later it would come and will have the same disruptive effects.

Just to be clear, I am not saying Bitcoin are going to be the future. Even after a 400% return during the last year, I am skeptical about a possible use of Bitcoin in our daily life. I see the Bitcoin as the “price” for money laundering. The underlying technology of this cryptocurrency, the Blockchain, it is evolutionary and transformative and it is what matters most.