Blockchain. Are you still reading? Hasn’t the hoopla passed?
It’s been 12 years since the world was introduced to the technology that launched cryptocurrencies like Bitcoin. The revolution was here! Once a mere curiosity, this tech has gotten a breakout session or two at banker conventions ever since it hit the scene. Its insistence for attention has persisted, and has never been more warranted than right now. Blockchain is on the verge of doing much shaking.
At first, it was all very intriguing. But no one really knew how community banks would be converting all of this confusing technology into commercial loans for small businesses or farmers. Surprising no one, the alternative currencies that blockchain has allowed for have not become a global phenomenon. Yet, large financial institutions took notice of blockchain early, asking themselves “How can we get our arms around this and make it profitable?”
The future of digital currency remains murky, but blockchain has grown more sophisticated and has already taken hold in many industries. The financial industry still has much to gain by expanding its understanding and use of blockchain, alternative currencies notwithstanding.
A brief refresher: Blockchain records information in a way that makes it theoretically impossible to hack, change or cheat it. It is a digital ledger of transactions that is duplicated and distributed across an entire network of computer systems on the blockchain in real time. If a transaction is made in error it cannot be altered unless another entirely new transaction occurs to correct it. Along with encryption, rules like this provide an extreme level of security and transparency in record keeping. It should be noted, however, that early, poorly managed blockchain networks, mostly involving alternative currencies, were successfully attacked. Much has changed.
Major tech companies have recognized blockchain’s potential. Four years ago, IBM launched its own blockchain service, blasting open the field and throwing the company’s gorilla weight behind the creation of secure transaction server networks for specific purposes. Since then, the number of startup companies creating blockchain services has exploded. It seems all industries are being asked to give it a try in one way or another. Community banks are no exception. The transition to decentralized transaction records will take some time, but it is becoming more inevitable. Along the way, community banks will start adopting blockchain, probably before they even recognize it’s in use.
SecureKey is one way blockchain enters banking from a side door. Currently only operating in Canada, but working to expand far beyond, SecureKey is a customer tool that relies, in part, on their bank’s information to help them prove their identity quickly online. Online applications for services, for instance, can use this blockchain ledger to verify a potential customer who has downloaded the SecureKey app and verified themselves on the network through institutions with community trust and authority, like banks and governments.
Faster processing of online loan applications has been a burgeoning tech tool for banks. A blockchain ledger like SecureKey injected into such a system will make this faster and more secure. Though U.S. banks are not leading the charge of adopting blockchain services, innovation and field testing is underway around the globe, and on a huge scale.
This past summer, IBM made a few waves by partnering with we.trade, a blockchain network owned by 12 multinational banks. “Built on the latest version of the IBM Blockchain Platform, we.trade is designed to connect buyers, sellers, banks, insurers and logistics organisations in a network that simplifies cross-border trading,” the company stated in a press release. “Once on the network, traders can initiate orders, manage the order-to-payment process and attain financing. They can also search the network to discover new trading partners.”
Business transactions conducted globally are well-suited for blockchain. The group said: “Momentum has been building over the past few months as companies move to replace paper-based trade finance exchanges with [digitized] processes.”
They don’t mention COVID-19 by name, but the scramble to further reduce paperwork securely speaks for itself.
we.trade has begun to extend services to additional banks and clients across Europe and will be expanding globally any minute. I expect U.S. banks to be the last to show up to the blockparty. But it’s time to start thinking about an outfit.