By Thomas Cullen
Tech & Innovation Editor
Blockchain technology is a form of digital record keeping, and the technology has the potential to change the way the financial industry functions. According to Investopedia, Blockchain technology the backbone of the Bitcoin crypto-currency. Bitcoin, for those who are unaware, is a digital currency that can be bought and sold for currencies backed by countries (dollars, yen, pound, etc.). The currency is no backed up by anything tangible, the only thing that makes Bitcoins valued as a currency is the fact that people accept the currency as payment. When a system of people and business accept bitcoin as payment for goods and services, then people will value the currency and will trade it between each other.
This is no different from state-backed currencies- the only thing that makes a dollar valuable is the fact that others value it as well. Blockchain technology is the ledger that keeps track of the bitcoins that are exchanged between “blocks,” which represent people on the network.
Each transaction that a block makes is recorded, and these transactions are permanent.
This technology could also be implemented into the wider financial industry according to Goldman Sachs. They think that the public and encrypted blockchain can be utilized as a replacement for the middle-man role that banks and clearing houses currently play according to uk.businessinsider.com. A Goldman’s analyst Robert D. Boroujerdi said that “It [blockchain] has the potential to redefine transactions and the back office of a multitude of different industries.” These different industries that he mentioned include voting, vehicles registrations, academic records, ownership for works of art, and many more. The thing that unites all of these is that they all require secure records of ownership and transfers of that information to other blocks to be kept.
Reuters says that the distributed nature of this technology allows it to be a cheaper alternative to the intermediaries that are currently used in the banking industry. The central intermediary body that handles the transactions between banks is called the Bank of International Settlements. Blockchain would eliminate the role of a central entity that handles the flow of money and record keeping in the market. All of that information would be kept in a distributed form on the blockchain instead.
In terms of government, blockchain can also disrupt the role of citizenship in a country. Bitcoinmagazine.com reported on the e-citizenship program that Estonia currently partakes in. This means that people will soon be able to become digital residents of Estonia so that they can take advantage of the lack of income tax in the country. The only time that the money made in Estonia is taxed is when it is transferred back to that person’s home nation. This does not mean that they are allowed to become physical residents- only digital residents with financial investments in the country. The e-residency site says that “By offering e-residents the same services, Estonia is proudly pioneering the idea of a country without borders.” The system of e-residency functions off of blockchain technology that keeps track of all records and transactions that are accrued by the e-residents is recorded by the blockchain.
Blockchain is a relatively new technology, and it is not without its risks. There is currently no regulation of the technology, and there is still the question of who will pay for its creation.
A version of this article appeared in the Tuesday, December 8th print edition.
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