Bring On the Blockchain Future

By June 6, 2016Bitcoin Business

Could the technology behind bitcoin, the alternative currency much loved by anarchists and drug dealers, make the world less vulnerable to financial disasters?

Surprisingly enough, it could.

In the eight years since the crash, regulators have made some progress in strengthening the global financial system, but the structure is still not as robust as one might wish. In principle, new technologies — including blockchain, the idea that underlies bitcoin — could help fix some of this fragility. It’s a possibility well worth pursuing.

In what way is the system still weak? Crucial functions — such as payments and trading — remain concentrated in large, undercapitalized banks or other central hubs ; despite regulators’ efforts, losses at those institutions could still have economywide repercussions. To make matters worse, the authorities don’t yet have a clear real-time picture of what’s happening in financial markets or where risk is concentrated . Blockchain technology is capable of addressing both issues.

Finance is all about trust: Essentially, financial institutions evolved to enable transactions with strangers. Centralized intermediaries of various kinds solved that problem, keeping track of who owns what and who owes whom. But centralized intermediaries also create points of systemic vulnerability. Regulators continue to wrestle with this underlying — and hitherto unavoidable — dilemma.

Blockchain establishes trust in a new way. It creates a so-called distributed ledger, which maintains a complete history of all participants’ transactions — a history that’s verified and recorded across a network of computers spread around the world. There’s no need to trust a single source. The record resides in so many places that it can’t be lost or tampered with.

Now imagine all financial transactions — from paychecks to derivative contracts — residing on a public distributed ledger. Everyone, including regulators, would be in a much better position to see (and to head off) […]

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