Bitcoin has been closely observed since its inception in 2009, but it is not just the controversial reasons why it caught attention, in fact, it is widely believed that blockchain, the underlying technology behind bitcoin transactions, has a tendency to change how Wall Street works.
Blockchain allows financial institutions to develop a digital ledger that is protected by cryptography and can be shared among individuals involved in a transaction. This enables authorized participants to alter the ledger without waiting for an approval from the central authority. Oftentimes, it results in fast and safe transactions that allow institutions to save time and money.
The CEO and Cofounder of Chain, Adam Ludwin, recently had an interview session with TIME about how blockchain holds a potential for Wall Street. He said that the whole idea of developing the blockchain was to resolve the issue of a double spending problem. The concepts were brought together in a sophisticated manner to launch a new internet-based network that was not only open but also decentralized. However, there is an issue of accepting a new currency, for example, introducing bitcoin in Vietnam will be a powerful step, but it also means that a receiver is willing to accept it. Moreover, both senders and receivers should be willing to adopt scalability, transparency, and governance that comes with accepting bitcoin as a currency. He further said that bitcoin isn’t a failure in his opinion; in fact, it is very much alive and well even today despite the controversies surrounding it. The focus is toward building new networks that move stocks, dollars, bonds, gift cards, loyalty points, and other such instruments with the same momentum and direction as bitcoin moves.
Upon asking how the blockchain will make financial transactions cheaper, fast and secure, Ludwin said that if you look at international wire transfer today, there is an efficient financial email system between banks called SWIFT that triggers the movement of funds from bank to bank on several hops, based on where the sender and receiver is. The entire process might take several days and is likely to consume a large number of percentage points of the payment amount. Instead of sending an e-message, if a currency can be put into a native digital format, the assets can also be sent electronically. This is what blockchains brought to the world. So, he said that if the assets can be sent as opposed to just sending messages, then he can pay a supplier in Vietnam as quickly as sending an email.
Referring to the hype about how blockchain can be applied to other industries, Ludwin said that it is functionally viewed as a next generation database for financial securities. The basic reason behind using blockchain architecture is to spread the database over the entire market in such a way that when an individual moves his assets from point X to point Y, it doesn’t leave any copy at point X.
He also talked about the challenges faced by firms with regards to the adoption of blockchain technology in the Wall Street. He said that financial companies and institutions are still asking the wrong questions when it comes to these cryptographic databases. They ask how can they use blockchain to streamline their middle and back office and how can this technology be used to make the operations more efficient? Whereas, what they should really ask is what role do they want to play in this new network model?
This is not about a change in just one organization, but a change in the entire market. Although, it will take some time, it will be faster than what you think.