Banks and the Blockchain

Posted By: Cindy McGinness | June 11, 2016 | 0 Comments

Go to any conference on the crypto-currency Bitcoin or the underlying technology that enables it, the blockchain,103264751-GettyImages-520132389_530x298 and you’ll see more and more financial institutions kicking the tires to learn what it’s all about and how to apply it.  A few years ago it was arguably something that the financial sector could ignore, but in the past year upwards of a billion dollars has been invested towards it and hundreds of startups are now feverishly working towards making us all pay closer attention to this technology. While most people have heard of Bitcoin, it’s really the blockchain that carries endless possibilities and potential. The question is how well that potential applies to money movement in the current, heavily regulated, banking industry.

 

To take a step backward, the blockchain, simply put, is a database of records. What makes it unique is that data added to it (known as blocks) cannot be altered or manipulated. One can only continue adding to a continuously growing string. This means the integrity of the data’s history is second to none. Another advantage of it is that it is a permissionless, public network that can have data added to it by any user. If you imagine a bank’s data center today, you would most likely think of a physical space full of racks of servers, all working to store the data unique to that bank’s members. These servers come with maintenance costs, potential errors or hazards, and overhead. Relying on blockchain to act as a database would mean doing away with a lot of these expenses. The potential savings from a database perspective is enough to whet the appetite of most industries, hence the sudden explosion of startups yearning to lead the charge on enabling this technology.

 

The conflict that is currently the topic of many debates is how well this type of public, decentralized, data applies to a more regulated, centralized industry. Many advocates of Bitcoin and blockchain tech will tell you that the anonymity and real sense of ownership that a user has over their data is what makes it so desirable to the consumer in the first place. To commercialize this technology within the confines of an industry as regulated as Wall Street means doing away with a lot of the draws that excited users of it in the first place.  On the other hand, the data infrastructure for the businesses that adopt this technology has nowhere to go but up.  While it might still be a highly volatile industry, I imagine it wouldn’t be a bad investment for a business to hire a few experts fresh out of college who understand it.

 

What does it all mean for our industry? It means that the blockchain is here to stay. Choose to ignore it in the long term, and there is potential to fall behind on what could very well be the future data sharing on the Internet. Choose to embrace it too early and there’s potential to bleed millions of dollars in time and money in the pursuit of a technology that our infrastructure is not yet ready to support. Many would argue that there is no “killer app” yet that leverages the blockchain. For credit unions specifically, it seems more appropriate to remain on the sidelines until that killer app exists and then quickly become fast followers. Unless of course, anyone is brave enough to be the innovators that lead that charge, should they be willing to conquer the learning curve.

Cindy McGinness

Cindy McGinness

Cindy McGinness manages the Mobile and Bill Payment platforms which enable customer self-service.In this role, she shapes the product vision, directs the product roadmap and has responsibility for the performance and expansion for PSCU’s consumer facing digital solutions in market.Cindy has more than 20 years of experience in the financial services industry with experience in Innovation, client relations, and training during her tenure at PSCU.
Cindy McGinness

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