Blockchain. Blockchain explained.
BFSI – Banking, Financial Services and Insurance
I am a working professional since 1980; now for about 37 years. I am with IT industry since 1994; so now for about 23 years. I used to take seminars in colleges in the 1990’s informing about Internet. And give speeches about Internet at various audience. The same about Cloud Computing in the years 2009/10. I used to see IT always from USER perspective. Whether it is Internet or Cloud Computing I used to explain the same well suited to the audience. It is easy to envision any new technology when the same is explained with what one is practicing! So now here goes my attempt of explaining Blockchain technology for finance, banking people. As it appears now, BFSI sector seems to be one of the major early adopter of Blockchain technology. It should matter most to them! Please keep it in mind that Blockchain is more than Bitcoin.
An apt quote here from Association for Financial Professionals, AFP, President, Jim Kaitz:
It is more critical than ever to look at technology with a long view—how it will help us not just now, but five years from now. At the same time, we don’t have the luxury of waiting to evaluate technologies such as AI, new computing architectures, and Blockchain and distributed ledger. According to the World Economic Forum, we need to proceed with haste, but wisely. ‘
Blockchain explained for banking
Bank transaction as of now:
Let us consider a money transaction between a father and son. Son is studying abroad and father send money monthly. Father and son have bank accounts.
- Money debited each month in father’s bank account.(Transaction 1 – Ledger with Father’s bank)
- Money transferred using international bank network.
- May be message mechanisms like SWIFT – Society for Worldwide Interbank Financial Telecommunication or CHIPS Clearing House Interbank Payments System used.
- There should be fees, exchange rate conversions and time delay of a day or 2/3 days
And guidelines of foreign money transfers applied.
- Money credited in to son’s bank account. (Transaction 2 – Ledger with Son’s bank)
Banks usually don’t screw-up – may be a few in a million transaction gets screwed, followed-up by father and sorted-out.
The Blockchain approach:
Blockchain technology can be made use of to make the above bank transaction a bit efficient.
- A block with date, time and amount is created. Block can be seen both by father and son.
- This is a single transaction, so the son also knows about it.
- For the next month transaction, another block is created forming chain.
- To enable the Blockchain technology, services like Ripple is used by the banks.
Ripple protocol it is built upon a distributed open source Internet protocol, consensus ledger and native currency called XRP or Ripples.
Ripple informs the traditional bank transfer method is slow (average 3.5 days/ transaction), expensive ( about $ 1.6 trillion is spent as annual cost of transactions) and failure rates (screw-ups!) high. With Blockchain like Ripple transactions are faster, certain and with less costs.
Please note here that in this approach no Bitcoin or any other Cryptocurrency involved. Bitcoin is an application of Blockchain technology.
Malick, Chain Scripts, Chennai, India.
‘I have no special talent. I am only passionately curious’. -Albert Einstein