Guest Blog || Artur Meyster ||
In the past, most financial transactions were done manually, so even simple things like money transfers could take a long time. Today, things are very different—almost everything is handled digitally. What are the factors disrupting the financial and business sectors these days?
Technologies like Artificial Intelligence (AI), machine learning and robotics have the potential to change the financial industry forever. They are evolving fast, so it may be only a couple of years before things like biometric recognition in banks become more common. These are some of the technological changes transforming the financial and business sectors.
Blockchain: An Overview
When we send an email, we’re not actually sending the original message; we’re sending a copy. This was pretty practical at the beginning of the Internet, but it’s not that safe when it comes to financial transactions. Blockchain, a relatively new technology, is here to improve transparency and security in the financial industry.
In its most basic definition, Blockchain is a distributed and public ledger of information. This sounds very complex if you don’t understand the context. When someone makes a digital transaction, a block is created. A block stores data from financial transactions. This block is linked to other blocks in the public ledger called “chain”. A block contains information from both parties of the transaction, meaning that if you bought something from Alibaba, for instance, then the block will have your name and Alibaba’s.
Each block differentiates itself from others by using different “hashes”. These are cryptographic codes that identify each block. This is the reason it’s so difficult to hack or manipulate Blockchain. To do so, you’d have to hack all the other countless blocks in the chain. Blockchain enhances security in the financial industry.
Today, we also have smart contracts from Ethereum. Remember we previously said something about emails that are copies? The same happens with financial transactions such as contracts. However, this will change with Blockchain’s smart contracts.
When someone creates a smart contract, there’s a shared record, so that if someone makes a change, it’ll automatically be reflected in the other persons’ record. A smart contract in Blockchain is a contract that executes itself. This contract stores and handles all the agreements proposed by both parties. Smart contracts can handle enforcements, managements, and even payment.
The New Model of Democracy
It may sound weird to link Blockchain and politics, but if you look at the bigger picture, it can be done. Blockchain provides validated information from a database that is shared by everyone. Imagine how it could be used to measure politicians’ accountability.
Don Tapscott, the author of the book Blockchain Revolution, said in a recent TEDx talk:
“Today, on the Ethereum Blockchain, there are projects underway to do everything from creating a new replacement to the stock market, to create a new model of democracy, where politicians are accountable to citizens.”
Tapscott used a pretty accurate analogy of the Rube Goldberg machine to describe today’s financial system: “It’s a ridiculously complicated machine that does something really simple. It kind of reminds me of the financial services industry, honestly.”
In the same speech, he said that there are so many steps for a settlement to occur. With Blockchain, the settlement and payment is the same activity. Therefore, transactions don’t take that long.
Lower Transaction Costs
Blockchain is a decentralized network, so no entity regulates transactions. Instead, they’re handled by miners which charge a very minimal amount per transaction. Besides, Blockchain replaces legacy systems and intermediaries such as stock exchanges.
Blockchain has the potential to revolutionize the economy at so many levels. It could replace the stock market and add transparency to governmental transactions, making politicians more accountable. But this is just the beginning, and we may see a lot more from Blockchain in the future.
Artur Meyster is the CTO of Career Karma (YC W19), an online marketplace that matches career switchers with coding bootcamps. He is also the host of the Breaking Into Startups podcast, which features people with non-traditional backgrounds who broke into tech. www.careerkarma.com