Blockchain (19 juli 2017)

Blockchain draws attention as the driving force behind Bitcoin, the virtual currency. It has the potential to shake up the financial sector.

Thanks to the introduction of the euro, it is no longer necessary to exchange Guilders in Francs or Deutschmarks before leaving for France or Germany. Notwithstanding the introduction of a single European currency, there are more currencies today than twenty years ago. This has everything to do with the rise of hundreds of cryptocurrencies such as Bitcoin. Blockchain is the driving force behind the growing popularity of these digital currencies. Alexander Mouthon, product specialist, describes blockchain as a trusted and public ledger.

Blockchain explained

‘In essence blockchain is a shared ledger that everyone can inspect, but which no single user controls’, explains Alexander Mouthon. ‘The ledger is kept up-to-date by the participants in the blockchain network, who have to comply to strict rules when amending the ledger. A blockchain maintains a continuously growing list of records. Each block contains a timestamp and a link to a previous block. That makes it impossible to retroactively alter data without also having to change all connecting blocks.’ In a decentralized system like that of cryptocurrencies, this means one has to alter the records which are being kept on the computers of thousands of different users worldwide. It is nearly impossible to counterfeit or conduct fraud with Bitcoins or other cryptocurrencies.

Enormous potential

The ability to reconcile transactions quickly and efficiently without the risk of fraud means, that the potential of blockchain reaches far beyond the world of cryptocurrencies.

Blockchain reaches far beyond the world of cryptocurrencies

It is no longer necessary to rely on an independent third party such as a bank or a notary to keep track of transactions. The Spanish bank Santander* predicted that the savings of new banking technology costs could reach $ 20 billion by 2020. David Yermack, Professor of Finance at New York University Stern, named blockchain the most important invention in the financial world since the introduction of the Balance bookkeeping 500 years ago.

Shift to digital

The rise of blockchain symbolizes how new technologies are drastically changing our world and the shift of more activities to digital. ‘Online payments currently represent less than 1% of the total market for global payments of over fifty-four thousand billion dollars’, explains Sylvie Sejournet, senior investment manager of the Pictet-Digital fund: ‘That percentage should rise significantly going forward. For investors, it might make sense to allocate a part of their portfolio to a fund which focuses solely on the companies that benefit from the shift to digital.’