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Bitcoin has popularized the underlying technology that enables the currency called the blockchain. Blockchain is a kind of “distributed ledger”. There’s not a single entity or overseer that manages and maintains a master copy of the information, like a bank. With a distributed ledger the information is in the hands of many participants. Members works off of a “consensus mechanism” that determines how a ledger is to be updated. Blockchain and Bitcoin, for example, are based on a cryptographic mechanism that can ensure ownership and provide proof of information entered into the ledger.
Blockchain has become an experimental testbed for the creation of “smart contracts”. Advantages of blockchain technology include:
- Accuracy – provides trace of ownership and a complete history of traceable records.
- Security – provides a transparent and tamper-proof record of actions that can be publicly shared.
- Cost – the technology has the potential to make the cost of transactions much cheaper.
David Rutter, chief executive at R3, a blockchain technology company, said in a statement that blockchain “technologies represent a new frontier of innovation and will dramatically improve the way the financial services industry operates, in much the same way as the advent of electronic trading decades ago delivered huge advancements in efficiency, transparency, scalability and security.”
In an evaluation led by the company R3, 42 banks participated in evaluating distributed ledger technologies from Chain, Eris Industries, Ethereum, IBM and Intel, all of which have developed such technologies either as open source projects or for enterprise. Some of the banks participating in the trial are: Bank of America, Barclays , BBVA, Bank of New York Mellon, Citi, Deutsche Bank, JP Morgan, Goldman Sachs, HSBC, Morgan Stanley, State Street, and Wells Fargo.
Adam Ludwin, CEO of Chain, said that “by undertaking initiatives such as this one, R3 is further accelerating the adoption of blockchain technology by demonstrating, instead of simply asserting, the commercial advantages of this emerging approach to financial services.”