Blockchain is a distributed encrypted ledger that ensures the validity of transactions and is virtually impossible to hack. But what does this mean?
What it means is trust.
At its core, blockchain technology is potentially transformative thanks to its ability to programmatically validate transactions and embed information into the ledger – thus building trust directly into those transactions without third-party intermediaries.
For financial transactions, these third-party intermediaries are typically banks. With block chain – the technology supporting cryptocurrencies – transactions are self-evidently valid by the nature of the system that processes the transaction. That means banks have a diminished role as trust brokers.
Disruption for finance
For finance in particular, this is disruptive. Take accounts payable, for example. In a block chain world, transparency is built in, such that identity is unquestionable. Payments are made directly to the transaction partner, encrypted with private keys, and then validated by every computer in the block chain network – thus making the transaction inviolable and fully visible. If a transaction partner changes banking info, there’s no need for the AP department to get involved in updating the records, or for someone having to validate, “Yep, that’s me, send the money over.”
Moving along the hype curve
All intelligent technologies are subject to a certain amount of hype as they’re introduced to the market. Intelligent cloud technology has by now passed the apex of the hype curve and is well on its way to widespread adoption. Blockchain, comparably, is still climbing.
Indeed, it seems that more and more use cases are found every day – such as fraud prevention, compliance for critical industries such as health, and the authentication of precious jewels. One promising development for finance is the potential to prevent money being stolen during cash-payment transactions between buyers and suppliers. This is a big problem that costs businesses billions every year. For transactions executed using blockchain technology, this problem goes away.
The need for improved performance
What currently stands in the way of more widespread adoption is performance and scalability. Take Bitcoin, for example – the single biggest use case for blockchain out there today. Bitcoin limits the block size to 1 megabyte of data, which reportedly translates into approximately three transactions per second. Compare this to Visa, which processes approximately 2,000 per second.
How do you fix this and other challenges? Maybe you don’t. Maybe you move to another platform – Ethereum, Ripple, Litecoin, Monero, the list goes on. Or maybe you wait. The point is that progress is being made with the technology.
This external global perspective is republished here from the Digitalist Magazine and forms part 3 in the 3-part “Finance and Intelligent Technology” series by Tony Klimas of EY and Joel Bernstein of SAP.
Click HERE to view more EOH articles in our Quarterly magazine.
