Technology has transformed how we work, play and do business. It has provided new solutions to old problems, disrupted traditional business models and helped us become more efficient.
A number of small-scale blockchain implementations have been launched over the past two years involving:
- Proxy voting
- Asset issuance
- Company registrations
- Digital identities
- Private equity
- International payments
Distributed ledger technology (of which blockchain is an example) uses cryptographic tools and a distributed consensus process to create a significant innovation in traditional record keeping. It has three main features:
-
- Veracity:
Multiple copies of the complete historical record of ledger entries are each verified by consensus.
-
- Transparency:
It is a public record of activity that can be seen by all market participants.
-
- Disintermediation:
It operates using a peer-to-peer network, rather than requiring a specific central organisation.
There is a big difference in what technologies you need, depending on whether you allow anyone to write to your blockchain, or known, vetted participants.
What is a blockchain?
Internal consistency. By using a fingerprint instead of a timestamp or a numerical sequence, you also get a nice way of validating the data. In any blockchain, you can generate the block fingerprints yourself by using certain algorithms. If the fingerprints are consistent with the data, and the fingerprints join up in a chain, then you can be sure that the blockchain is internally consistent. If anyone wants to meddle with any of the data, they have to regenerate all the fingerprints from that point forwards and the blockchain will look different.
How is new data communicated?
Peer to peer is one way of distributing data in a network. Another way is client-server.
Client-server
In the office environment, often data is held on servers, and wherever you log in, you can access the data. The server holds 100% of the data, and the clients trust that the data is definitive. Most of the internet is client-server where the website is held on the server, and you are the client when you access it. This is very efficient, and a traditional model in computing.
Peer-to-peer
In peer-to-peer models, it’s more like a gossip network where each peer has 100% of the data, and updates are shared around. Peer-to-peer is in some ways less efficient than client-server, as data is replicated many times; once per machine, and each change or addition to the data creates a lot of noisy gossip. However each peer is more independent, and can continue operating to some extent if it loses connectivity to the rest of the network. Also peer-to-peer networks are more robust, as there is no central server that can be controlled, so closing down peer-to-peer networks is harder.
What can it do for financial services?
Many leading financial services firms now recognize blockchain technology has evolved to the stage where it could help overhaul and reshape traditional industry structures and operating models. Blockchain has triggered an unprecedented level of financial services industry cooperation involving investment banks, global custodians, asset managers, exchanges and regulators.