Crytocurrency’s narrative has changed in the six years since the appearance of bitcoin, with the financial industry now looking for ways to be part of the ecosystem. By far the most exciting part of this trend is the blockchain, the digital ledger underlying bitcoin’s technology. For many CIOs and CTOs the coming years will demand solutions that incorporate blockchain into processes and related product inventions.
Like any accounting system, blockchains are a way to instantiate a ledger. Unlike other systems, the blockchain ledger is distributed; it lives with all parties who run its software. Transaction verification is done with heavy cryptography which, in the case of bitcoin, is made possible by crowdsourcing processing power. Ensuring a party actually owns the bitcoin pledged in a transaction—or any asset being tracked by this type of system—only requires a simple query of the blockchain.
A sign in French that reads: “We accept bitcoins” hangs at a display of the LedgerWallet Nano USB stick that enables security-protected transactions with bitcoins at the 2015 CeBIT technology trade fair in Hanover, Germany, on March 16, 2015.
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For the world’s capital markets, with hundreds of billions of dollars and according underlying assets swapped daily, blockchains offer the potential for greater efficiencies and less infrastructure across a number of marketplaces. In their current form, blockchains can be utilized to transfer financial instruments, i.e. payments and asset transfer in a cryptographic, immutable way. Institutions that clear and settle trades, especially those handling cumbersome OTC instruments and proprietary derivatives, could use blockchain technology to replace