Efficiency and technological advancement are two characteristics of the future. Banks have begun to realize that the traditional method of doing business is not the most efficient way to do business; therefore, they have turned to blockchain technology to cut costs and increase efficiency.
Traditionally, each financial institution maintains their ledgers. If a transaction takes place from Bank A to Bank B, there should be two copies of the record, one at each institution. However, there may be inconsistencies between the records from institution to institution. To resolve these disparities, an employee must match each transaction that occurred against each transaction on the ledger—a taxing and tedious process.
Those are the ways of the past; the future is efficiency; that is why banks are interested in blockchain technology, or as they prefer to call it, “Distributed Ledger Technology”. Similar to the blockchain, a distributed ledger is a digital record of who-owns-what. Distributed Ledger Technologies, such as Corda, allow banks to make faster transactions because they do not need to wait for international banking clearances like you must wait for in our traditional banking system. Distributed Ledger Technology also cuts out any 3rd party and therefore eliminates any 3rd party fee, lowering the overall transaction cost. Aaron Decosse, lead teller at KeyBank comments:
“I have noticed that when clients want to wire or send money through banks it has an extremely high cost and we lose many clients to western union...in short, Blockchain technology is not being implemented yet but it is desirable for the lowering of cost of transactions in sending docs and funds.”
One Distributed Ledger Platform on the rise is Hyper Ledger, a Linux Foundation Collaborative Project backed by giants like J.P. Morgan, IBM, and Intel. The difference between distributed ledgers and blockchain is that distributed ledger technologies exclude decentralization.
Founder and CEO of Ubitquity, Nathan Wosnack says that he’s seen banks implement “a watered down, inefficient blockchain with many centralized aspects, "permissioned", with poor consensus that could easily be hacked all in an effort to attempt to undermine the only blockchain that truly matters in the end; the Bitcoin blockchain.”
When asked why blockchain technology was so desirable for the banking and finance industries he said:
“Because they want to undermine Bitcoin through smear campaigns, and hijack the word "Blockchain" so they can weasel their way in and become dominant players.”
It’s great to see companies developing platforms and making efforts to bring us one step closer to the future, but why fix a bridge that’s not broken? Blockchain already exists, so why reinvent the wheel? Daniel Boutrin, head of research at Banco de Desenvolvimento de Minas Gerais explains: “All technologists want is leverage on the idea so they can get money out of it.”
Maybe the profit really is what keeps the developers developing, or maybe they truly care about the future and bringing us advanced technologies.
Or maybe it’s a bit of both – but as Wosnack said before:
“The only blockchain that truly matters in the end; the Bitcoin blockchain.”