What is Bitcoin and Blockchain Technology?
Blockchain technology is essentially a digital ledger. However, the way that value is traded and stored in the ledger is what makes this technology ‘disruptive’. In a traditional ledger, there are various copies that must be validated to ensure that the transaction was executed the way it was intended. In a blockchain, there is only one copy that is updated in real time, and it cannot be altered. This provides absolute trust in the transaction, ensuring no middle entity can intercept or change the exchange. The power of this ledger can be used in any kind of trade that requires trust. The first application of this technology was Bitcoin, which was introduced in 2008, now in use for a decade. Bitcoin is a digital currency that uses a blockchain to store, track and trade the currency.
Although there are hundreds of other digital currencies, Bitcoin has emerged as a mature example that has grown exponentially in value.
Currencies are one example of a digital asset that can be traded using a blockchain. However, any asset that requires tracking and trust can be managed by a blockchain. This includes contracts, mortgages, logistics, and even digital identity. Some of the areas blockchains are emerging in financial services include managing loyalty programs, settlement, member voting, and asset tracking. However, since blockchain technology is still early in its development, there are few large-scale blockchain projects.
What Credit Unions Can Expect
According to Gartner Inc., a global IT research and advisory services firm, blockchain was the top search on Gartner.com in 2017. However, despite the hype, few projects have evolved past the experimentation stage. A notable exception is in the financial industry, where there are key projects underway to improve international settlement processes, create smart contracts, and manage digital currency. A key area for development is to create trusted member authentication – a digital ID managed by a blockchain. Trusted digital identity is critical in a time when privacy and security of data risks are increasing. Credit unions will soon be expected to broker “trusted” authentication for blockchain services requested by members at a point in the not too distant future.
To prepare for the entrance of blockchain, most credit unions and financial institutions will start with small, simple experiments such as the member voting process implemented by Affinity Credit Union, which you can see here.
To read more about bitcoin and the blockchain, you can visit honestmoney.ca where you will find Cryptocurrency 101 and Cryptocurrency 201 as a good background for this emerging topic.
