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Justifying the Blockchain Craze In The World Of Finance

Justifying the Blockchain Craze in the World Of Finance

Reading Time: 2 minutes by on November 24, 2017 Blockchain, Commentary, Finance, News
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After Visa, Mastercard and numerous other companies around the world announced their blockchain-based networks in the final quarter of 2017; it seems that almost every major financial institution is trying to do the same.

Sifting Through Half-Baked Ideas

On the outside, it would appear as if the tech industry is currently engaged in a frantic craze to integrate the blockchain into virtually anything that can benefit from it in the slightest. With over $3 billion invested in new ICOs in 2017 and the introduction of many new blockchain-based solutions, that assumption wouldn’t be too far off from reality.

A blockchain does offer tangible, real-world benefits for many applications but it is often difficult to separate half-baked solutions from practical, well-designed ones.

In November 2017, for instance, Goldman Sachs Group and JPMorgan Chase announced the completion of their six-month long test that involved tracking swap contracts on a blockchain platform. At first glance, this is an excellent example of the blockchain craze versus genuine improvements in a sector. 

There is nothing inherently special about keeping track of swap contracts and is, in fact, something that can be very easily accomplished without the use of sophisticated technologies like the blockchain. Moreover, maintaining a blockchain of almost any scale requires a significant amount of combined computational resources in exchange for a paltry throughput.

Maintaining Swap Contracts

Despite that logic, it is probably in situations similar to this one where a blockchain flexes its strength, that is, in applications that don’t initially seem to benefit from implementing one. On the surface, maintaining swap contracts can be as simplistic as maintaining a centralized database of current and past agreements.

A company, similar to the one that assisted with the blockchain for this project, could set up a repository and a website to keep track of these transactions. But as previously stated, just because a minimum viable product can be implemented without a blockchain, doesn’t mean that there’s no benefit in using one.

A centralized system makes any recorded data either prone to errors or vulnerable to malicious intent. Even with the best infrastructure, the system is only as strong as its weakest link. The centralization of data means that all businesses would have to trust the company maintaining the database of contracts.

In the event of a mishap, these firms would then ultimately resort to arguing over the authenticity of those records.

Using a blockchain not only mitigates the risk of the mishap in the first place but also distributes a copy of the ledger to all participants. All problems discussed above with regards to maintaining a single repository are quickly dispelled with the use of a decentralized ledger-based system.

Making the Mundane Commonplace

It is evident that blockchain technology is not going away anytime soon and will continue to seep into every facet of banking. What is truly astounding though, is how the world continues to be obsessed with every new adoption milestone that the blockchain achieves in the banking industry.

The discussion is rarely about the marginal improvements that the technology brings to the table and instead, almost seems as if people have a vested interest in making blockchains commonplace. The lack of true investigation is in part much of the concern with many ICOs and the advent of alternative coins.

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