After years of lackluster stock performance and a lack of disruption to the status quo of government-backed currency, Bitcoin is finally starting to make good on its lofty promises. The cryptocurrency is now accepted by thousands of retailers, including Expedia, Overstock.com and Microsoft. However, the real power of Bitcoin lies in the idea behind it: Blockchain. This process represents a real opportunity to change and, more importantly, improve the way that a number of industries do business. The financial and retail sectors are two industries that can significantly benefit from this Bitcoin-fueled technology.
Blockchain Fundamentals
A decentralized digital ledger at its core, blockchain is actually less complex than it seems. Each bitcoin transaction must be authenticated by all of the participants in the blockchain’s peer-to-peer network. This process of verification takes place behind the scenes using algorithms and a “mining†process that essentially gives each transaction a stamp of approval, allowing it to be successfully recorded onto the ledger. Any changes made are reflected across the blockchain, thereby making it impossible for transactions to be tampered with once added. Created specifically for Bitcoin, blockchain can be tweaked to make it more adaptable for financial services and e-commerce.
Blockchain and Finance
A comprehensive study by Accenture convinced the global management consultancy that blockchain has the power to bring key changes to the financial services industry. Their research found that 90 percent of commercial banking professionals are interested in making blockchain part of their company’s payment operations. With 60 percent of those interested stating their firm has either implemented blockchain, reached the production stage or is engaged in proof-of-concepts with other companies, this is more than just hopefull rhetoric.
Blockchain by Any Other Name
The financial services industry comes with a lot of regulatory, consumer privacy and scalability requirements. Because of this, organizations like R3CEV, the largest blockchain for banking and technology firms, have had to deviate from the Bitcoin form of blockchain to create one that better suits the needs and requirements of the industry. However, even R3CEV concedes that their open-sourced ledger Corda is “heavily inspired by and the captures the benefits of blockchain systems.â€
Less Time, More Money
It’s no secret that the financial industry has a legacy software problem. Some commercial institutions are using systems as much as 30 or 40 years old, so the industry is definitely due for an overhaul. This is especially true when it comes to settlement times. Instead of taking days to settle, blockchain would allow transactions to process in minutes or even seconds.
Costly middle and back office staffing costs would be eliminated. Likewise, fees to intermediaries like custodial banks and, in the case of investment firms, clearing houses, would also become a thing of the past. Consumers would save time and enjoy a reduction in fees, while banks could reduce operating expenses and optimize revenue. Lower frictional costs, administrative costs and shorter settlement times all ranked among the top three “Major Anticipated Benefits of Blockchain†in the Accenture study.
Blockchain and E-Commerce
As e-commerce continues to be a target for cybersecurity attacks, the need for a more robust approach to data security remains a key issue in the industry. Target, America’s second largest discount retailer, is still reeling from an attack that happened back in 2013 and cost the company almost $20 million in damages paid to affected consumers. There are numerous online retailers with similar stories. But as Roger Haenni, co-founder and CEO of Datum, a data security company, explains, “The new decentralized platform known as blockchain enables a new class of services, with smart contract technology enabling businesses to focus on commerce and protect themselves.â€
Trust is Paramount
With even the biggest e-commerce companies vulnerable to data breaches, maintaining trust with clients is essential. Retailers need to be able to demonstrate that consumer data is secure beyond question. Blockchain-enabled smart contracts ensure that sensitive data like credit card information is only seen by authorized parties who are part of the blockchain. Money, goods and services can securely be exchanged far from the view of prying eyes.
The Highest Level of Security
One of the most compelling security features of the blockchain is its decentralized network. Without a clear access point, it is impossible to insert malware into the blockchain, including ransomware like that used in the infamous WannaCry attack that devastated organizations around the world. In addition, the distributed ledger technology behind blockchain necessitates verification every step of the way, each of which occurs independent from the others. This is the highest level of security.Â
Bitcoin was created to break down the barriers of traditional currency, but its blockchain roots are strong enough to disrupt a whole lot more. Though the exact form may change a bit or even go by a different name, the essence of blockchain remains its strength and the driving force behind its wider applications. Thanks to Bitcoin, the blockchain revolution has begun and neither the financial or e-commerce industry can afford to miss it.