At the Association of Corporate Treasurers Cash Management conference on 11-12 February at the session on on ‘bitcoin and other cryptocurrencies - any practical applications’ Richard G Brown, IBM Executive Architect gave an introductory talk on Bitcoin and Block Chains. His take on the essence and importance of blockchain / bitcoin technology was illuminating and important. His main points were:
- physical cash, e.g. a £20 note, was unique enabling direct transfer of value, peer-to-peer exchange of value without anyone else being involved. There was no way that this could be duplicated electronically, e.g. to send value to someone in New Zealand without using a trusted intermediary such as a bank. Until 1 November 2008 when Satoshi Nakamoto (probably a group of cryptographers) announced that “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party” and followed up their claim with a white paper and then code which worked, and so Bitcoin and Block Chain were born
- now the financial world on the left can be replaced by the peer-to-peer transfer on the right where there is no need for a trusted third intermediary, see figure:
- Source & Copyright©2015 - IBM Inc.
- such peer-to-peer systems can work on the Internet where they are called crypto-currencies and are open for value exchange (there are many more than just Bitcoin) which use wallets for storing the coins/the value tokens. Making payments is very simple - it is just a transfer from one wallet to another, as the screenshot of a Bitcoin wallet below shows:
- critically the payment system is a push payment system without the need to give confidential secret data like account number and PIN, etc.
Importance of Block Chain
Brown finished his talk with a beautifully simple and clear diagram of how peer-to-peer exchange of value using Block Chain replicated, shared ledger systems work, see figure below.
Peer-to-peer exchange of value and Block Chain operation
Source & Copyright©2015 - IBM Inc.
This transfer of value across the Internet without the need for a trusted intermediary is truly revolutionary.
Brown stressed that “Whilst these technologies are portrayed by some as a threat to banks and other financial institutions, they also represent opportunities for banks: both to provide existing services more effectively and as the basis of potential new products and services.” And, though there are many issues to be resolved and much work to be done, he believes that there many possible applications for the new technology, including:
- near-instant, near free international value transfer,. i.e. remittance services (He is surprised that this hadn’t happened in any scale)
- programmable money where the recipient can only unlock the value when some event happens, e.g. when goods are delivered
- a new model for anti-money laundering as there could be public visibility of transactions
- a custody model with asset transfer with finality, i.e. a model where securities are registered and transferred across a block chain
- smart contracts with advanced transaction scripting.
CTMfile take: The financial and business world changed with the release of a technology that really will allow transfer of value across the Internet without the need for a trusted intermediary. Although considerable development is required to make such systems secure and reliable, nevertheless, the move to distributed value transfer systems truly has started and has the potential to decentralize everything.