Despite its immaturity and the many challenges it still poses, the financial sector has set its sights on blockchain technology, which will be an excellent opportunity to generate new, more agile banking tools for its customers, but which still has several significant challenges ahead. Citigroup and Nasdaq have announced the launch of this technology that Cecabank and Grant Thornton have also adopted in our country. What are the advantages and risks of your application?
Decentralization, participation, and autonomy are the main features of blockchain, born by the hand of the main cryptocurrency, Bitcoin. Basically, it’s a cryptographic algorithm. That is a sequence of instructions put into a program for the machine to execute using cryptographic code. This makes it not accessible to those who do not know the key.
Miguel A. Juan, partner-director of S2 Group, uses a simile to explain how it works: “Imagine that we had a chain of safe deposit boxes each with its combination. The boxes are hooked to each other like a supermarket cart. In order to access the contents of the box, you have to have a key”.
If we move it to the financial sector, for each of these transactions, a block of information is generated that is verified by the community members themselves and stored on the blockchain or main blockchain, just after the block or previous transfer.
This blockchain is public and can be consulted at any time by any member. Also, there is no single copy of the string as each is stored by each system member and is periodically synchronized to ensure that all users share the same version of the database.
Besides, it is a decentralized system in which there are no intermediaries, which allows reducing the cost of transactions, and a priori is more secure and transparent. “Instead of keeping the transaction log in the database or computers of the entities, they dump it in that chain or blockchain,” Miguel A. Juan. Its impact on the financial industry is evident: it reduces the role of intermediaries of banks and central banks.
Challenges Now, there are still several challenges in its application. According to a study by Deloitte, although this technology is revolutionary and promising, it is still very immature. The big challenge is its regulation because there is no legal framework that supports the rights of users who use this technology or the obligations of the institutions that implement it. In this sense, each blockchain community establishes its own standards, based on keys of trust relationships and a regularly monitored environment in which it operates democratically.
Another challenge is the energy that consumes this technology. Being an algorithm, running in peer-to-peer mode on computer networks, it leads to a high power consumption due to the use of microprocessors and ventilation needs. And, like any automation process, it ends up destroying jobs, although it will also generate new positions.
Beyond finance, this technology has raised expectations in other sectors. One of them is the real estate cadastre because it allows creating a register that lists who owns each property or land, as well as all the transactions of the sale made. In this way, any kind of fraud or manipulation is avoided,” explains Miguel A. Juan, partner-director of S2 Grupo. Its use can also be applied in voting systems or to sell or rent almost anything or object.