New Bitcoin tech to push financial institutions into the future?
Bitcoin, a decentralised digital currency (also known as a cryptocurrency) is behind a technological shift that may have widespread impacts on the future of financial systems.
Since coming into prominence in 2013 the currency has been adopted by companies such as Microsoft and Dell, but it has not been without its problems.
After suffering a range of cyber-attacks since its launch in 2008, the need to adapt quickly to external forces has led some Bitcoin providers to become companies standing at the forefront of security technology.
Earlier this year, Goldman Sachs released a statement regarding Bitcoin’s newest technology ‘Blockchain’, saying that it had the potential to “change… well everything”.
Whilst Bitcoin itself is not as popular as it once was, the underlying technology can help shape a potentially more secure and efficient transactional system. Blockchain, simply put, is a digital ledger that records all transaction history across a large network of connected computers. It removes the need for a third party or ‘middle man’ to regulate transactions because the system itself is self-regulating.
Each ‘node’ (computer) using the network receives encrypted information about each user and every transfer they conduct dating back to the ‘genesis block’ (first transaction) to the most recently completed transaction.
Whilst the idea of having one large database storing every user’s financial data may not seem secure, the system itself is completely autonomous from human interference. Each transaction is validated by millions of nodes and if even a single one of them fail then the transaction doesn’t happen, making hacking the system virtually impossible.
The Governor of the Reserve Bank of Australia Glenn Stevens said, speaking with The Australian Financial Review, “Blockchain is actually the bit about bitcoin that was, I think, the really clever bit”. He further believes it could bring significant benefits to the Australian and global banking systems.
The Australian Securities Exchange shares Stevens’s views and has invested $14.9 million for a 5% share in Digital Assets Holdings (New York), a company that is designing a distributed ledger system using the same technology.
The CEO of Digital Assets Holdings Blythe Masters explained that “the work we have done with the ASX to date indicates that Australia has a unique opportunity to be a world leader in the adoption of distributed ledger technology”.
Whilst it may be some time before we see Blockchain or a system like it in our banking environment, many financial institutions around the world have started testing the technology. With so many experts seemingly backing the distributed digital ledger system we may be at the dawn of a new digital age of banking.
Do you have any comments or questions regarding the state of the current or upcoming financial systems and how it will impact you? Let us know by contacting us today.