First things first: Do not confuse the blockchain with Bitcoin. The two are not synonymous.
Bitcoin is a virtual currency with more than its share of baggage: a volatile exchange rate, the 2014 failure of its largest exchange (Mt. Gox) with some 600,000 units unaccounted for, and a reputation as the tender of choice for an array of illegal or illicit activities.
Much of the dust has settled, and after its wild late-2013, early-2014 ride, Bitcoin has traded within a relatively stable range for the past two years.
Nonetheless, it is unlikely to sufficiently shake off that tainted image to become an accepted mainstream currency.
Plenty of competing currencies are lined up for their shot at the brass ring (see Ethereum). But so long as their first association is with gambling, I’d suggest they’re on the wrong course.
Blockchain, by contrast, is the underlying technology that enables Bitcoin. Because virtual currencies were blockchain’s first high-profile application, some have dismissed the technology out of hand.
This is akin to writing off cable TV in the 1970s because one of its early mass market uses was to deliver The Playboy Channel.
Credit unions ignore the blockchain at their peril. If you need further evidence, simply follow the “smart money.”
Bank of America has announced investments totaling $9 billion, with Wells Fargo and Citigroup not far behind.
Large banks’ balance sheets provide them the luxury of dabbling in new ventures. But when the numbers involved start with a “B,” it’s time to take notice.
These same institutions have also kicked off a nearly unprecedented patent land grab around blockchain intellectual property, one that threatens to redefine the landscape for years to come.
So what is the blockchain? This video provides a layman’s overview.
Simply put, it’s a system of distributed record-keeping linked across a large number of nodes (computers).
Because the historical record is housed across many computers it is exceedingly difficult (hopefully human experience has taught us to avoid the word “impossible”) to falsify an entry. Doing so would require a fraudster to corrupt not one but all the distributed records across the chain.
And as soon as any discrepancy was introduced, warning flags would be raised and the data trail tracked to the point of divergence.
A couple of important points to consider:
• Blockchain networks can be public or private. Most of the press to date has focused on public networks. While these certainly have value, they’ve also contributed to the blockchain’s Wild West image.
Financial institution renditions of blockchain technology will almost certainly involve private networks in which participants’ identities are vetted and their incentives well-defined (hence no need for the present “coin mining” exercises to motivate users to contribute their computing capacity).
Zealots are sure to lament the erosion of some of the blockchain features (e.g. anonymity) they hold dear. Others will point to the natural order of progress and commercialization.
• Blockchain technology can be applied to more than currencies. In fact, the most intriguing mainstream blockchain applications have nothing to do with stores of value competing for primacy with the dollar, euro, or yuan.
Consider the definition above and envision the value that could be created—and cost savings generated—in areas like smart contracts, title deeds, and identity verification.
Credit unions are well-positioned to deliver such solutions thanks to their history of collaboration, as well as their reputation for providing member-centric services.
There are accompanying challenges, of course. Funding and achieving critical mass will inevitably arise as issues, not to mention the need to prioritize such a significant initiative while simultaneously addressing near-term imperatives.
But it’s an essential conversation. Someone is going to capitalize on blockchain’s financial services potential, and credit unions cannot afford to be excluded from the conversation.