Byline: Roy Urrico
Big banks have been collaborating to develop blockchain technology,
a public ledger of transactions run without a primary authority that
could allow for the exchange of data, assets and currencies more
efficiently and transparently.
"A blockchain is a public and distributed ledger of all
bitcoin transactions that have ever been executed," Lois Hansen,
vice president, product development for the Rancho Cucamonga,
Calif.-based payments CUSO CO-OP Financial Services, said. "It is
constantly growing as Cycompleted' blocks are added to it with a
new set of recordings."
Hansen further explained, "The blocks are added to the
blockchain in a linear, chronological order. In other words, bitcoin is
a virtual currency with no regulating agency or bank. Blockchain is the
technology enabler to support bitcoin transactions. Fintech companies
are seeing the value of the technology but not the concept of an
unregulated currency."
Proponents of blockchain technology believe it could introduce
trust and transparency to online transactions. And some industry experts
say it could renovate an outdated global banking system and lead to far
faster payments. Some also point to the potential for blockchain
technology to simplify B2B payments, and resolve issues surrounding
cross-border payments and other large-volume payments that are exclusive
to the B2B environment.
"It is a breakthrough technology," Anthony Di Iorio
(pictured), CEO and founder of the Toronto-based innovation hub
Decentral and chief technology officer for the Toronto Stock Exchange,
told CU Times. "It is a new kind of database that is
revolutionizing the way people interact because it removes the necessity
of trusting other people."
Di Iorio added, "Payments are instantaneous. You can transfer
value anywhere around the world for free, and [blockchain technology]
has removed intermediaries in payment systems and is bringing people
together in a peer-to-peer fashion."
Blockchain technology is somewhat controversial, however, as it has
left many wondering what effects will trickle down to community
financial institutions, including credit unions.
Many skeptics also think it is too early to gamble on blockchain
technology transforming the financial system, since there are still
worries tied to the volatility of bitcoin and everything connected to
it.
In addition, they believe it is important to remove the bitcoin use
case from blockchain technology. Bitcoin, released as open-source
software in 2009, was the first currency associated with blockchain
technology. While blockchain technology enables the anonymous exchange
of digital assets, such as bitcoin, it is not technically dependent on
bitcoin.
Di Iorio does not think financial institutions should wait to dip
their toes into the blockchain waters, however.
"Credit unions and community banks all have the opportunity to
become leaders in this technology that is going to be groundbreaking for
the industry," he said. "If they get on board with this, start
learning it, and start being leaders in this, they can start instituting
systems and maybe do it even quicker than some of the larger guys. They
have the ability to be like startups and start driving this
technology."
Hansen expressed hesitation, stating, "Major institutions are
not really lining up behind bitcoin, but they are kicking the tires as
to blockchain's merits, possibly in other financial models.
However, some are also backing away, primarily starting in
Australia."
The bank blockchain technology partnership, led by the New York
City-based financial innovation company R3, includes Barclays, BBVA,
Commonwealth Bank of Australia, Credit Suisse, J.P. Morgan, State
Street, Royal Bank of Scotland and UBS. The goal of the initiative is
for financial institutions to safely, securely store and share data in a
consistent, effective ledger outside a firm's firewalls.
According to Reuters, the venture's initial focus will be on
an underlying architecture. The group will collaborate on research,
experimentation, design and engineering to help advance
state-of-the-art, enterprise-scale shared ledger solutions to meet
banking requirements for security, reliability, performance, scalability
and audit requirements.
Learn more about blockchain technology in the Feb. 3, 2016 print
issue of Credit Union Times.