New Kids on the Block(chain)
While bitcoins grab the headlines for their wild fluctuations in value, the real prize might be in the introduction of blockchain – the verification system that is poised to change the way financial institutions record transactions, share information, and secure data.
Bitcoins and blockchain are among the buzziest words in the fintech world. Both have been making recent headlines given each’s impact on the payments industry. But will either be hangin’ tough and able to withstand the scrutiny that comes with new innovations and disruptors? While the debate rages on about the value and ultimate longevity of each type of technology, many organizations are considering the pros and cons of each and considering how they may fit into their larger processes in the future.
Initially bursting onto the scene in 2009, bitcoin was promised as a new payment system for peer-to-peer transactions taking place directly between users, operating without a central authority or bank. The verification system for this cryptocurrency’s transactions were through network nodes, giving way to the emergence of blockchain, which recorded all bitcoin transactions via digitized and distributed public ledger technology.
While buzz around bitcoin has fluctuated for its nearly 10-year existence, especially given it recently broke record high valuations, many have cried fraud on bitcoins. Without regulations in place and with potential holes for fraudsters to exploit, many financial institutions have remained skeptical of this digital payment. But others have actually hailed blockchain as one of the new profound ways of transforming business transactions. Each block features a recorded set of transactions, with each additional set of transactions being added to a new block through cryptography to prevent meddling. This new system has allowed organizations to maintain and record data while allowing multiple parties to share information with greater security and confidence than ever before. This increased security is because of the fact that data is distributed across networks, rather than centralized in one place. As more transactions occur, organizations still face a challenge in managing the storage size of blockchains and syncing the latest set of information.
Despite its emergence through bitcoin, blockchain has become a popular consideration for traditional financial institutions, from JP Morgan to UBS. With the financial industry being especially risk-averse and slow to adopt new technologies (with good reason!), blockchain has offered them a potential way to prevent fraud. They’ve started to collaborate with blockchain start-ups to maintain, distribute, and update their authorized signature lists for transactions. This allows them to process all kinds of transactions, from trades to transfers, more quickly and safely, while offering greater cost savings as well.
Time will tell if these technologies have the right stuff required for mainstream adoption. Most institutions are still just at the experimental stage, needing greater assurances and tests to ensure these new technologies are as safe as they claim to be. While bitcoin may not have any regulation, banks and other businesses do, so it’s imperative that they’ve been tried (step by step) and tested thoroughly before officially implemented.
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