How Bitcoin’s Underlying Technology Could Disrupt Financial Services
Bitcoin’s potential as a financial tool is a hotly debated topic with strong advocates on both sides, but the real disruptive innovation of Bitcoin may be its underlying technology that supports its network, according to a new report by Celent.
Bitcoin transactions are recorded in a first-of-its-kind cryptographic ledger that serves as the trusted record for the entire Bitcoin network, and the underlying principles of that ledger could have a disruptive impact far beyond financial services, the report, titled “The Disruptive Potential of Bitcoin: Why Everyone in Financial Services Should Care,” argues.
[For more of our coverage on Bitcoin, check out: How Fraud Attacks on Bitcoin Are Changing.]
Every Bitcoin transaction is grouped into a “block” that fits certain cryptographic rules. Those blocks then have to added to the “blockchain” (the cryptographic ledger of all confirmed Bitcoin transactions) through a process called Bitcoin mining. The cryptographic rules that govern the blockchain and the mining process are meant to ensure the integrity and chronological order of every transaction.
The Celent report posits that a similar cryptographic ledger could be leveraged for trusted digital records and exchanges like financial transactions, public documents, and smart contracts. Other examples of such cryptographic ledgers are starting to emerge, such as Ripple, which provides an open-source payments protocol for real-time transactions in any currency, according to the report.
Similar to how HTTP became the protocol for exchanging information online, ledger systems like Bitcoin or Ripple “might be seen as the protocol for [digital] value exchange, promising exciting possibilities, some of which are difficult to imagine at this point,” the report states.
Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio