Many technology people have called 2018 the “Year of the Blockchain,” and given the permanent and transparent nature of the platform, many of these advances have been in the realm of financial technology. For those that are new to blockchain, the basic essentials to understand are:
- It is a transactional database where records of any kind can be recorded.
- Data on blockchain is never erased, as each record (block) is explicitly linked to the other (chain).
- Data is constantly audited across an encrypted network. Because multiple systems are examining the same data, it is easy to confirm data and detect/correct anomalies.
These benefits have emerged as exciting new ideas for finance in a number of ways, from new paths to invest and fundraise for companies to new forms of currency.
However, the innovations that aren’t quite as headline-grabbing actually power some of the biggest advances in the financial sector. This means that while things like Initial Coin Offerings and Stablecoin currency feel new and exciting, the true power of blockchain may lie more in the securing the logistics of existing transactions.
How Blockchain Impacts Credit Unions
Because credit unions operate in a different way than commercial banks and Stablecoin initiatives, blockchain won’t give credit unions their own cryptocurrency anytime soon. However, consider the logistics that happen with transactions. Assets have to be tracked, titles have to change hands and records have to be audited. Blockchain is a perfect platform for this because of the following traits:
- Permanence: Establishing a permanent and immutable record means that no data will be questioned from opposing parties. This will expedite any types of disputes or record checking.
- Publicly accessible: Blockchain’s inherent designs uses a public network (though in a protected encrypted fashion used only for vetting and auditing). This means that records can be shared among different parties, creating a single-sourced database. For example, this allows a credit union to transmit a title using the same data asset with a title company rather than two individual records.
- Hackproof: Any type of vital transactions for legal, financial or governmental purposes needs to be secure. Because of blockchain’s protocol for continuous public vetting of records, records are far safer than the databases currently used by the financial sector.
The most important thing to know is that blockchain can power any type of data transaction in a safe and secure manner. That’s why people are envisioning it as a means to power many types of logistical data in the future as the world moves towards being connected and smart. For credit unions in particular, blockchain may simplify and streamline processes such as identity authentication, transactions crossing borders and record auditing.
Of course, in order for this to become successful, it requires oversight and regulation. It doesn’t matter what type of data model a platform uses if it’s unregulated, particularly when records and finance are involved. Privacy, security and infrastructure are key concerns – in fact, blockchain faced an infrastructure crisis in late 2017 when digital cats managed to take down the Ethereum network (seriously, that happened).
Because this is bleeding-edge technology, there’s always going to be a learning curve as well. That’s why so many steps in governmental and financial spaces involve pilot programs and baby steps forward. There’s simply too much at stake to rush into it.
The Cryptocurrency Conundrum
Cryptocurrency such as Bitcoin is nationless money allowed to process transactions across a blockchain network – the blocks on the chain are essentially dollars. Like dollars, there are serial numbers, limited amounts and traceability. The appeal of cryptocurrency involves a decentralized source: it removes theoretical middle-men and removes geopolitical ties to currency value. Cryptocurrency banks are looming on the horizon, but these will most likely be one step removed from traditional credit unions. Because these banks act as bridges between traditional banking and the cryptocurrency industry, they provide a buffer against the volatility and wild-west feel of Bitcoin and others cryptocurrencies.
However, there is a push for gradual mainstream acceptance of Bitcoin. The SEC has begun proceedings to debate ETF approval of Bitcoin. If approved, Bitcoin will become much easier to buy and will most likely be seen as a mass-accessible currency. Keep in mind that while things like Apple Pay and PayPal allow for electronic payments, they’re still doing that with native currency; the difference here is that Bitcoin exists as its own currency, like a digital precious metal. SEC approval of Bitcoin will essentially legitimize that currency.
If and when that happens, the credit union industry will have to evaluate just how this type of transaction can be worked as an acceptable currency for savings and investment. The industry is currently evaluating these possibilities for down the road, but for now, any blockchain involvement will remain strictly on a process level.
That doesn’t sound as sexy as the rise of a new currency. But even in the “boring” world of records and transactions, blockchain can make things safer and more secure. For credit unions, plain old stability may be the most exciting in the world.