With the Reserve Bank soon to introduce their New Payments Platform, we thought we’d take a look at the technology underpinning the system. Many have hailed this technology as the biggest invention since the computer in the 1970’s and the internet in the 1990’s.
What’s Blockchain you ask? Put very simply it’s a platform which builds trust and secures data (whether documents or transactions) between two parties.
Blockchain is about establishing a TRUST relationship between two parties. This trust relationship can then be used to digitally transfer funds, documents, contracts, titles/shares etc. anything of value that needs to be secure. What makes it secure is where it’s stored. It’s stored everywhere, on thousands of connected systems making transactions impossible to hack. Here how Blockchain works:
Blockchain uses public platforms – and computers which connect to it are called a “node”. Any Node can connect to the blockchain network, to connect to the information, but only a private key can then open the blockchain itself which contains the information or transaction.
This new payment platform makes it much more secure than relying on information which is centrally stored, because centralised information is open to hacking (remember the Sony hack?), whereas a myriad of copies of the same blockchain can’t be hacked or changed – there are just too many copies. It forms part of the permanent record and is more secure because of the duplicate copies of the record sitting across thousands of locations.
It has huge ramifications for financial transactions, document transfers, simplifying the supply and receipt of information and access to personal information records such as health records. Take it one step further it enables people to connect directly with each other to transact – so Air BNB, Uber and even iTunes may be far less relevant as consumers will be able to deal directly with core suppliers.
It also makes it really easy for reputable companies to establish trust and their reputation with prospects i.e. verify real news vs fake news so there’s a good opportunity for brands to establish trust.
There are also huge opportunities for micro-transaction economies to develop because you don’t need a bank account to be involved in transactions.
As a crypto-currency, Bitcoin is the original and biggest user of blockchain technology, but it’s fast gaining pace amongst mainstream organisations because of its security and transparency.
Opportunities with Blockchain:
Instant transactions which are publicly available and permanent – so locked – having access on many platforms makes it more secure than one central platform which could be hacked.
Users don’t need bank / financial institution access – they need a cellphone and internet access. This opens a very high proportion of the world population to this technology i.e. 63% of African population do not have bank accounts, yet over 90% have cellphones.
Ability to secure not only financial peer to peer transactions, but things like health records, land titles, welfare payments, voting systems (imagine unhackable online voting??).
International Wire Transfers such as workers in developed countries sending money back home – up to 25% fees charged by 3rd party finance providers. Peer to peer blockchain removes this cost, sending funds directly from the sender to receiver with no other party involvement. It will be interesting to see how players like Western Union evolve as Blockchain comes into play.
Issues / Challenges with Blockchain:
The biggest challenge is the sheer energy consumed by blockchains is not currently sustainable, and it’s currently slow – i.e. Visa can process 2000 transactions / second vs 7/second current time for blockchain. Once these issues can be overcome its mainstream usage will explode.
Many banking institutions worldwide are investing in building their own blockchain technology right now, and there’s lots of information out there on what Blockchain is and how it will change the world. This is one of the better basic presentations which explains Blockchain simply, visit the video here.
We’ll continue to monitor and report on Blockchain progress in future blogs. If you ever in need of a trusted bookkeeper in Sunshine Coast, you can contact us. We provide a whole lot of bookkeeping services which includes payroll, BAS preparation, Xero integration, setup, and training.