Blockchain 101: A Short Guide

Blockchain has two key functions, which is the accuracy of data to verify transactions, and of course, the next part is – it incentivizes the nodes, the people who actually verify this transaction. General public is still bit skeptical with cryptocurrencies, bitcoins because of the previous market sentiments. People are not aware and clear as this is the first time a currency is being introduced that is not governed by a central Government. People do not understand what the technology that drives these cryptocurrencies is. Hence, there is a lot of room for education with regards to what blockchain is and what cryptocurrency is all about. 

The banking sector is definitely one of the industries that feels that it is going to be greatly affected by the blockchain but it is just not a disruptor for the banking sector. It is a disruptor to a lot of other mainstream technologies because blockchain is a foundational disruption. It changes fundamentally a lot of different aspects to how wealth is being distributed, to how data is actually being viewed. 

Blockchain is something which is not directly affecting bank’s consumer base more in terms of how they would deal within themselves, within the organizations, within the banks, so it’s still very nascent at this point in time. But banks need to adapt very quickly to the growing demands from the consumer in terms of transaction, in terms of the transfer of money, and that’s something which the banking sector needs to adapt very quickly. 

Generally, the bank’s attitude towards blockchain is very positive. However, the banks are very skeptical when it comes to cryptocurrencies. It is very difficult to actually separate cryptocurrencies and blockchain because fundamentally you cannot create a crypto asset if it’s not derived from blockchain and because of this misunderstanding, a lot of people tend to say, that they don’t want to talk about cryptocurrencies, but they want to talk about blockchain.  Here a correction needs to be made by constantly telling them what blockchain technology is all about first. For instance in Malaysia there is not a lot of developments in utilizing blockchain. Malaysian’s are only approaching blockchain from an understanding of what it is so that they can better package their products for the market, and banks are realizing that people are moving towards blockchain, towards digital payments, towards cryptocurrency and how it affects even retail payments. 

Eventually, they would definitely be also producing products that will have a blockchain-based technology that is driving it. Blockchain has two key functions, which is the veracity of data to verify transactions, and of course, the next part is – it incentivizes the nodes, the people who actually verify this transaction. So if you’re looking at that and understanding that fundamental concept, we are seeing how banks, if they ought to do a blockchain they will probably present themselves as again the trusted partner to be able to conduct this transaction for their clients.

Eventually the more they embark on such a project, they will present themselves as the partner for their current clients. It’s a good way forward for most of these banks to be able to enlarge their pool and their consumer base. It will be very difficult for the banks to open up their ledger. Therefore, there might be a certain permutation in terms of providing some private blockchain platforms that would be more closed, permissioned than the public platforms that we are more used to like Bitcoins and Ethereum. 

Banks still manage their own ledgers, but to be verified by all the nodes within their control. Hence it actually defeats the main purpose of blockchain. But because blockchain is a buzzword that is actually coming into the market, that’s how they will probably be moving towards. The most fundamental one would be the ease of transactions to be transacted. It’s so easy to transfer and send money to anyone anywhere in the world. For example, in Philippines almost 10 percent of the population who are working overseas and contribute to almost close to 20 percent of the GDP and a lot of them send money back to the Philippines, to the families. And this is actually in a very good way to be able to transfer money and also the ease of the money to be transferred is something which will help reduce costs, reduce the time, and everybody will be able to access it. That’s something which we definitely hope to see in the future as well. That’s one of the reasons blockchain technology has boomed quite tremendously in the last couple of years. 

We are looking forward to blockchain to improve digital payments and how these internal tokens can bring about a new way of payments to be created. It is still a long way to compete with the current payment system that’s provided by it is the next step towards creating a new way of doing business.  I am very excited about what the future is going to hold.  Some of the challenges that will be worth looking into how blockchain products can be utilized within banks. One problem came about, it’s the concept of leveraging. That’s how banks make their money as well in being able to provide loans to the consumers. That is still a challenge. The other area is the area of custody. Having a trustee and custody in terms of your money and obviously, in the event of your death, you would have the banks, obviously, you’ve got various platforms within our traditional mainstream environment, legal framework to be able to ascertain, your death certificate  and your next of kin will be able to withdraw the money.  That is almost impossible when it comes to cryptocurrencies, digital wallets because you keep your private key to yourself, you can’t share your private key with your lawyer. There are already projects that are working on coming up with custody-based projects on blockchain. It’s exciting to see what the future holds. There are a lot of these projects that are coming up to replace what we are used to in the mainstream world. The ability for us to confirm and verify our transactions, that is fundamental being able to do that. So if banks are able to provide that and produce that as a supplementary service that enhances their trustability, then obviously that will work well for their business as well as their consumers. The user experience will really depend on what they want. Each one will want a different experience in its sense. But having said that, because of the value that blockchain can bring at the backend of stuff, organizations, financial institutions, banks, what they probably need to do is to learn how to actually have it on application layer. The consumer experience in making it easy for the different touchpoints for the consumer. So if you can do that, obviously mainstream adoption, they don’t even need to know that it is actually blockchain-based. There is a growing movement right now within even the blockchain community that, in order for us to have a higher level of mainstream adoption, is to make the consumer experience much seamless, much easier. It’s all in our digital apps, our digital wallets. Even though it’s not blockchain, you will find that more and more people are beginning to slowly adopt towards that digital revolution. As we slowly move towards revolutionizing the entire digital economy from our retail experience to our banking experience to even our social media experience, you’ll find that people will eventually fall into it. So it’s just a matter of time. Market is definitely excited about the implementation of blockchain beyond cryptocurrencies.