Friday, February 23, 2018 /10:30  AM/ FDC 

Intoday’s world, disruption is the constant over-arching theme. Technology isconstantly changing the way we do things. The recent rise – and fall – incrypto-currencies caught the majority of people off guard. Many still dismissthem as fool’s gold, and lacking in most of the fundamental properties of aproper currency (medium of exchange, store of value and a unit of account). Bitcoinis perhaps the most popular of the lot. It is now even traded on a futuresexchange. Where many saw a bubble, others saw opportunity for a quick buck. Thevalue of bitcoin skyrocketed by over 2000% in the space of a year to $20,000per coin – astronomical by any standard – but has fallen to under $9,000 as atthe 9th of February. 

Whetherbitcoin or any of the countless other crypto-currencies will be worth upwardsof $50,000 per coin, as predicted by some analysts, or that it will one dayreplace fiat-currency, is something that is still the subject of frenzieddebates. However, the real treasure is blockchain – the underlying technologyon which bitcoin and the entire crypto currency universe is based. 

Whatis blockchain ? 
Purportedlythe brainchild of a person or group of persons known as Satoshi Nakamoto,blockchain, also known as distributed ledger technology (DLT), is a digitalplatform and database that allows digital information to be distributed but notcopied. Originally created to authenticate bitcoin transactions, it wasdesigned as a way to centralize record-keeping without needing third-partyauthorization – like a bank or a regulator. It enables users to record, track,and validate peer-to-peer transactions. Confirmation of records is done bymultiple users with access to the data. It keeps a permanent record of alltransactions, keeps users information anonymous while all activity is secureand unchangeable. But beyond recording financial transactions, it can be usedto record practically everything of value. 

Decentralization– the masterstroke 
Thissingle advancement in technology has the potential to revolutionize our worldand the way we do business in ways so profound it would have been consideredunfathomable just a few years ago. Perhaps the most crucial area where theblockchain technology comes into play is in guaranteeing the legitimacy of atransaction by documenting it on a main register as well as on a connecteddistributed system of registers, all connected through a secure validationmechanism. 

Thedatabase is not stored in a single location – It is hosted by millions ofcomputers concurrently and stays accessible to anyone on the internet. Thismeans records stay public, can be easily verified, and no centralized version ofthis information exists for any hacker to corrupt.  

Whatcan blockchain do for business? 
Atthe moment, the financial industry, and banking in particular, has the biggestpotential for disruption by blockchain technology. Its proponents are of theopinion that current banking processes are expensive and time-consuming andblockchain technology presents a much more secure and convenient alternative.From all kinds of payments, settlements, trade finance and even compliance, theunderlying features of blockchain technology seems almost tailor-made forbanking and it is garnering increasing support from major players in theglob-al financial services industry. 

Accordingto PWC, as of 2014, over 45% of financial intermediaries worldwide sufferedfrom some form of economic crime yearly. Blockchain’s ability to create shareddigital data-bases of entries that are incorruptible would drasticallyeliminate the potential for cyber-attacks against many banking systems –currently built on centralized databases. The current system is highlyvulnerable as a single breach of the system by hackers gives them full access. 

Anotherbig win would be in the area of remittances as it would drastically cut downthe time taken to complete a transaction. Nigeria received an estimated $22bnin diaspora remittances in 2017 while spending $2bn (9%) in remittance fees. Thestandard transaction time is typically two business days. Blockchain technologyhas the ability to not only in-crease the speed and efficiency of sending andreceiving money, it also drastically lowers transaction costs. An example wouldbe Thailand, through Siam Commercial Bank, and Japan’s SBI Remit, which havemutually adopted the first blockchain-powered instant remittance service as away to create another means of payment between the two countries. A transactionthat would typically take two business days to complete is now being done in anestimated time of less than five seconds. 

Anothermajor area that DLT could give banking a significant upgrade – in terms of costand efficiency – is in trade finance. It has the potential to fine-tune thecross-border trade finance process through the use of smart contracts.Blockchain can store any kind of digital information – including computer codewhich could be programmed to generate contracts or carry out transactions oncea given set of conditions are met. It will allow companies to track orders andautomatically activate payments on specific events – for example, deliverybeing recorded could be programmed to trigger an invoice notification. It wouldlower the costs and complexity of the current process and may also mean that afar wider range of potential users could now access trade finance services. 

Otherareas of increased efficiency and cost-cutting would be in meeting the standardKnow Your Customer (KYC) regulations. A survey by Thomson Reuters estimatedthat financial institutions spend over $400mn annually on KYC requirements.Block-chain would simply allow the independent verification of one client byone organization to be accessed by others, saving time and cutting costssignificantly. 

PossibleImplications for Nigeria 
Sinceblockchain makes record-keeping more efficient, a blockchain of property titleswould go a very long way in drastically curbing cases of fraud in the sale ofproperties in Nigeria. The idea is already being experimented with in a fewadvanced countries like Sweden and Georgia.

Inthis and other developing parts of the world, the use of blockchain technologycould also facilitate financial inclusion: increasing the share of thepopulation with access to financial products. Nigeria is still well short ofthe Central Bank of Nigeria’s (CBN) target of 80% by 2020. Two years to thedeadline, only 41.6% has been achieved. The adoption of blockchain technologywould enable banks bridge this gap by circumventing legacy infrastructure – andthe attendant costs – especially in the rural communities. This would allowNigeria’s informal economy go mainstream, giving them access to services likecredit and insurance, allowing them expand their business and maximizepotential – by so doing, stimulating the wider economy. 

Itis still early days yet the impact has already been profound while thepossibilities appear limitless. The blockchain disruption may be the biggestyet and business may never be the same. 

Related News
1. CoinDesk Releases 2018 Blockchain Industry Report
2. Bcause LLC Opens Largest Cryptocurrency Mining Data Center In North America
3. Bitcoin Price Booms As US Senate Cryptocurrency Hearing Reassures Market, Boosts Value Of Ethereum
4. Blockchain’s Broken Promises
5. Coincheck To Refund All Customers Affected By 523m Nem Coin Hack
6. Crypto-Mining Malware Epidemic: 55% of Businesses Affected Worldwide, Incl. YouTube
7. How have Cryptocurrencies been adopted in Nigeria?
8. Cryptocurrencies Must be Regulated On A Global Scale - German Central Banker
9. Cryptos in 2018 and Frozen Accounts
10. Securities Commission Malaysia Issues Cease And Desist Order To CopyCash Foundation