Hailed as the “biggest single advance in fintech of the past decade” by Vice President of Financial Services at CGI UK, Jerry Norton, the blockchain is the real brains behind tools such as bitcoin that are quietly driving a financial revolution. While bitcoin claims the spotlight, the blockchain is tipped as the mechanism that will transform the way online purchases are made within two years, which means it should be at the top of every fintech radar.
Here are three things you need to know:
What is a blockchain?
It is a highly secure system of validating online events, including payments. It works by sharing a digital record of events with a network of independent parties as soon as they occur. Information can only be entered if it is confirmed by the majority of parties in the system and once created, the record cannot be deleted — it forms part of the most recent ‘block’, which is added to the chain in a linear, chronological order and permanently retains every detail of the event.
Why does it matter?
The single most important attribute of the blockchain is that the digital events recorded are almost impossible to falsify. To verify an entry, each participant must run an algorithm, which immediately assesses it against historic entries and provides evidence to support its conclusion. Through this fintech mechanism any online transaction — from a payment to the delivery of a document — can be certified quickly, efficiently and at minimum cost, all without the need for a centralised authority.
How will it impact finance?
Although some argue the emerging technology is a threat to banks, others expect to see it being used by mainstream financial institutions as early as next year. Indeed, there are a variety of ways in which the blockchain can help banks provide greater efficiency for their customers, while reducing costs. From bank transfers to transaction confirmations and settlement processing, the blockchain has the potential to streamline administrative practices and is tipped to become a desirable service for consumers — making it a must-have for banks to remain competitive.
While the full capabilities of the blockchain are yet to be proven, key players are starting to take notice. Last year saw a flurry of corporate funding for blockchain start-up businesses across global markets and only last month, Santander InnoVentures helped provide £5million in funding for blockchain intelligence company, Elliptic. Whatever the future may bring for blockchain technologies, it seems their role in fintech is assured.