If one technology or concept has driven attention at Fintech 2016, it’s certainly the Blockchain Technology, upon which the Bitcoin crypto-currency is based. This technology was the topic of the Wednesday’s lunch which was immediately followed by a discussion with a panel of high-level international experts.
Fintech Montreal 2016 was presented last Tuesday and Wednesday, on the 20th and 21st of September, at the Palais des Congrès and as expected the Who’s Who in the world of finance in Québec was attending. The program was well structured including of course, a « Startups » moment, just as every event worth attending does. God knows, Fintechs are worth the detour since they rock the Finance & Banks processes big time, invading a field which used to be exclusive to some, proposing simple, fluid and mobile enhanced solutions, in short, much more efficient; just think of the new “Mobile Money” paradigm and Mobile Banking!
In short, according to all these experts, the Blockchain Technology will revolutionize the field of Banks and Finance in the next few years and this revolution, although still pretty much invisible to the majority, has already started.
Why and how? Let’s see!
Blockchain or Bitcoin?
Let’s not forget that behind Bitcoin, there’s the Blockchain Technology which as its name suggests, is a database containing the history, under the form of chains of blocks, of all exchanges between participants since its creation, it’s a ledger of all accounts distributed between many computers (nodes).
These chains of blocks contain lists of transactions (of all sorts, potentially), validated (encrypted) by algorithms (proof-of-work) and therefore protected by the network since every node (computer) has a copy of that ledger (database). Users know that once their transactions have been written in the ledger, nobody can either erase it or modify it. For the essential, that’s Blockchain Technology.
A few interesting facts about Blockchain Technology:
- It’s a p2p network, with no intermediary
- It can be any type of transaction
- The Blockchain is replicated in the network in real-time
- It uses cryptography and digital signatures to validate users’ rights, transactions’ authenticity and participants’ identity
- The Blockchain can either be private or public (Bitcoin)
- The cryptography and replication render almost impossible altering the history of transactions
Three key concepts of Blockchain Technology
Will « crypto-currency » replace all currencies and gold soon as trading currency? Although this will not please Banks and big nations, it looks inevitable since the actual international financial system seems to be more favorable to big nations.
On the other hand, crypto-currencies such as Bitcoin are already being used for many different purposes, encouraging honesty, such as payments for the « miners », those developing encryption algorithms and executing the boring task of transactions’ authentication and protection (proof-of-work). The secret (encryption algorithm) is rewarded with crypto-currencies within Blockchain because by authenticating a transaction it becomes irrefutable and immutable, and it does, indeed, serves transparency and honesty.
Direct, instantaneous and immutable Transaction
Transactions are executed directly between the network participants, they are gathered in blocks which are shared among participants, without intermediaries. Each block is validated by the nodes of the network called « miners ». Participants trust the network without having to trust each participant individually, this notion is crucial at two levels because trust is the cornerstone of the whole Banks and Finance system.
First, trust to authenticate parties and transactions which was previously devoted to intermediaries « trusted » by the Banks and Finance system is now devoted to the network itself. Second, this trust between the network participants is reinforced by the fact that the ledger (the Blockchain Database) is, well, irrefutable and immutable… which was not necessarily always the case with the actual Banks and Finance system.
No doubt that Blockchain Technology will shake the foundations of the international Banks and Finance system. And under the Blockchain Technology, one cannot help but to re-read the old say this way: « You can’t even fool some people some time ».
This by-product of Blockchain Technology is certainly one of the most underestimated since smart contracts, in theory, will enable us to do without Banks (let’s bet that they will adapt in no time), lawyers and the whole legal apparatus!
Blockchains contain data (transactions details) but they can also contain programs which could be executed (enforced) between M2M, P2M or M2P under certain conditions; there you go, that’s a “smart contract”.
These preprogrammed conditions (if this, then that) must nevertheless interface with the real world, thanks to the Internet of Things. Basically, a contract is a promise that both parties accept to make executable “legally”; in a smart contract, you use the term “technically” to replace the term “legally”. Therefore, one must carefully define under which conditions, which parts of the contract (the parties’ obligations) will be executable and in which fashion, partially or totally.
Here again, we want to do without intermediaries and reduce cost, by automating the execution of contracts, partially or totally.
Behind this concept, a profound metamorphosis of society’s foundations itself is luring and showing its colours in the form of a pivotal question:
Is code law? And if not, will it be soon? When?
Inversely, are all laws and contracts codable… perfectly? And their execution?
In which case, get your kids immediately registered to the nearest programming school!
However, you may bet that it’s not tomorrow that the legal and financial systems will be able to evaluate the soundness (fairness) of a « smart contract» and the scope of its application.
One cannot underestimate the profound impact Blockchain Technology will have on both the legal and financial systems in the next few years.
For the moment, get in the know. Well. Now!
Oh, and yes, we really love the « unknown superhero » factor of the Bitcoin & Blockchain founder, Satochi Nakamoto; don’t you?
Denis Paul & Michel
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