At its heart, banks are a ledger of transactions, recording balances and changes.
For many years these have been recorded in databases which have been called “core banking systems” For the first time since the computerisation of banking, blockchain has brought a major shift in the way ledgers can be constructed
Previously a bank would install software from a software company, usually a RDBMS or Relational Database Management System, which would create a set of database tables, related to each other. This would be installed at the banks data centre and would store the transaction history of the banks customers
The blockhain transforms the paradigm , moving the transactions into a chain of cryptographically signed transactions, transferring asset ownership along the chain. Rather than being stored on a central system, the transaction histories are distributed across the network, in turn a “distributed ledger”
This threatens all of the technology providers based on databases as well as banks locked into a centralised database system with advantages of speed, security and agility
2. The single most
transformative
technology since ledgers
were first imagined and
which will move
everything we perceive as
value onto the internet
that we must either
understand or hand over
to the cyber punks
3.
4. Why?
• We can?
• STD’s
• Transparency
• Currency Instability
• Speed
• Pervasiveness of analogue
15. Questions
• Customers investing in Crypto Currencies – do we help them? Cash in/cash out
• Institutional Investing ? –Where is crypto on the balance sheet?
• Where are there trade efficiency improvements e.g.Water? InternationalTrade?
Rural?
• When does the AUD go digital?
• What talent do we need in our team? Now? / later?
• What platform capabilities do we need?
• What do we need from the regulators?
Editor's Notes
At its heart, banks are a ledger of transactions, recording balances and changes.
For many years these have been recorded in databases which have been called “core banking systems” For the first time since the computerisation of banking, blockchain has brought a major shift in the way ledgers can be constructed
Previously a bank would install software from a software company, usually a RDBMS or Relational Database Management System, which would create a set of database tables, related to each other. This would be installed at the banks data centre and would store the transaction history of the banks customers
The blockhain transforms the paradigm , moving the transactions into a chain of cryptographically signed transactions, transferring asset ownership along the chain. Rather than being stored on a central system, the transaction histories are distributed across the network, in turn a “distributed ledger”
This threatens all of the technology providers based on databases as well as banks locked into a centralised database system with advantages of speed, security and agility
The technology rose to prominence with Bitcoin and particularly the establishment and subsequent shutting down of the SilkRoad
In 2015 Ross Ulbricht was sentenced to life in prison without parole for running the Silk Road, an unprecedented dark web bazaar for drugs and other contraband
The site utilised Bitcoins to pay for goods on the site
The story highlights the capacity of cryptocurrencies to create new forms of anonymous value exchange that have become very popular amongst the criminal and terrorist underworld
With banks core business being payments and management of risk it highlights a number of other dilemmas including
CTF & AML – These regulations will not stop terrorism , money laundering or criminal activity. The dark web has only grown in the years since the FBI seized the Silk Road’s servers and arrested its creator in late 2013. At that time, the site had roughly 12,000 listings, for items ranging from marijuana to ecstasy to heroin to counterfeit documents. The largest dark web market today, Alphabay, has well over 300,000 listings, including more than 240,000 for drugs alone
Responsibility – Ulbricht’s defence was that he wasn’t doing anything illegal , just operating a marketplace . The judges ruling was very different
There are a lot of very good reasons Why the Blockchain exists, will exist and why banks and banking technology companies should be very curious about the blockchain
1/ Just because we can. It is in our very DNA to innovate and create better solutions. With the rise in cryptography since WWII the programmability of the security frameworks has empowered a new generation of transactional computing
2/ Sex, Tax and Drugs, along with their myriad counterparts, continue to give a very large number of people a very large and expensive number of reasons to transact undetected. Regardless of what happens in the regulated, overt economy. The organized criminal economy is over $2 trillion a year, of which illicit financial flows from developing countries is around US$1.1 trillion and sits at around 4% of global GDP. Someone and something has to launder it and the blockchain is putting its hand up
3/ Transparency: Whilst on the one hand the blockchain can be used anonymously it can also be used with a high degree of transparency. According Australian Fintech Civic Ledger Australia places 80th out of 140 countries in a ranking of the burden of government regulation on companies, citizens and communities costing $176 billion each year in forgone economic output. Governments are looking to novel technologies like blockchain to solve a series of problems simultaneously to give public sector markets those missing tools to stream line and speed up the customer fulfillment process by shifting from paper based economies to digital citizen-at-the-centre service.
4/ Currency Instability. Particularly vulnerable are market segments whose development have lagged economically or technologically along with those that are highly price sensitive or cost conscious. This includes developing world currency systems that are subject to high levels of fraud as well as micro and small businesses. These numbers are very large. According to Travelex, there are 180 currencies worldwide. Of these only a handful are highly regarded and trusted. In developed markets, small businesses contribute a large proportion of the overall GDP and an overwhelming proportion of the growth. Worldwide, small businesses employ the overwhelming majority of the total work force and upwards of 25% of the GDP in developed countries and 50% in developing markets.
Crypto currencies in closed loop payment models are well positioned to step into these traditionally cash heavy segments. This is because these segments are poorly served with technology and banking systems and are rapidly connecting to the internet via mobile, proving an opportunity to rapidly and economically leap frog old world technologies and conduct a land grab. Systems, like Moroku’s Marrakash will enable businesses across the world take payments, reduce cash management costs and grow their businesses by knowing and serving their customers better.
5/ Speed. Considering the speed of technological progress over the past two decades, the financial sector has moved surprisingly slow. It can sometimes take up to several days — a lifetime in tech terms — for payments to “clear” into a checking account, and sending or receiving money internationally can take even longer, depending on how the payment is made. Whilst NPP and faster payments will solve these issues nationally they are not set to resolve globally for some time. Whilst there has been much maligning of bitcoin settlement times as of late, rivals to bitcoin have rallied recently as interest in bitcoin spilled over in to competitors like Litecoin, which is similar to bitcoin but boasts a faster processing speed. Regardless, crypto settlement at worst is a few minutes.
6/ Pervasiveness of analogue. Whilst it seems like we live in a digital age, when we fast forward 100 years we will look back on today as a largely analogue world. There are still a huge number of analogue transactions, cash being an obvious example. The total amount of money in the world is $84 trillion. But that includes money in the bank. In physical coins and notes, the total global money supply is $31 trillion. (https://howmuch.net/articles/worlds-money-in-perspective)
What is Blockchain?
A blockchain, originally block chain, is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data.
Blockchain can be described in payments terms as a set of rails
On top of this various carriages/trains travel, including cryptocurrencies such as Bitcoin but foreseeably, any type of asset transfer
Thus – anywhere there is analogue record of transfer (ledger) such as currencies, contracts could be shifted to the block chain
The ASX is having a go to shift settlement top the blockchain
Back in November the price was USD 7K
It now is twice that!
Financial institutions have a responsbility to have a position on these crypto currencies if only from an investor perspective.
But beyond investment, people are today beginning to use crypto currencies for a range of every day transactions including paying bills. When should this be integrated into your everyday transaction banking account?
Or taken out of an ATM?
David Rutter, CEO of R3, commenting in relation to the development said: “International payments systems have struggled to keep pace with the explosion of global trade and the globalisation of the world’s markets. This marks a significant milestone for distributed ledger technology as we work alongside our bank members to harness its unique attributes to build the world’s first true international payments system.
ICOs
Rather than IPO’s where people created something of value, sold it generated returns and then floated the company to raise more capital and realise some of the value, Initial Coin Offerings are a way of creating an idea and then getting it funded by creating new coins as either an investment in the company or indeed as a value transfer mechanism within an ecosystem - perhaps the silk road would have done this instead of using Bitcoin?
Indeed Blockchain has become so advanced in the uses, spme peopke are providing core banking systems on the blockchain
Civic Ledger is an Australian company tackling some of the most arcane civic transactions, such as water rights
As an executive in a bank or credit union there are a lot of questions to be asked