Blockchain: Will It Deliver on Trust?

Bitcoin, the alt-currency playground of venture capitalists and gritty investors, made a break into the mainstream in March of 2017 when cryptocurrency surpassed the value of gold for the first time. But as digital currency soars to impressive heights and drops to gut-wrenching lows, Bitcoin has yet to achieve the true staying power of gold – a trustworthy even-keel that makes fiat currency so adored.

Those acquainted with its shadowy underside know there’s more than one reason investors avoid cryptocurrency like the plague. Its origins are thoroughly explored by the recent Netflix documentary “Banking on Bitcoin” directed by Christopher Cannucciari.

In the documentary, Cannucciari pitches two camps against one another, namely those inhabiting what is known as the “cypherpunks” movement (counter-cultural techies, fringe VC investors, Libertarians) and those whose world would be overthrown by something like Bitcoin, namely Wall Street and the financial regulatory powers that be.

But most of us live somewhere in the middle, stirred by the lofty promises of what this powerful technology can do, while on the same hand deterred by Bitcoin’s volatility and some of its past misuses.

An Efficiency Technology for the Masses

The most helpful starting point is to divorce Bitcoin, and all its controversy, from the blockchain technology that undergirds it. While many have impassioned feelings surrounding virtual currencies, the technology that enables it – the blockchain – has promised everything from bringing about a fast and efficient global payments system to revolutionizing how companies do supply chains.

There’s no better person to illuminate what this future holds than Peter Smith, CEO of the U.K.-based company Blockchain.

He says: “The technology is about being able to execute [financial] transactions in a low trust environment for a high value. It’s an efficiency technology.”

Co-opt to Adapt

Financial institutions are busy co-opting this technology through partnerships with blockchain startups or in-house R&D branches to see if they can secure a product in the decentralized financial marketplace of the future. This seems like the most logical way forward for this nascent technology that promises a cure-all solution for many of the financial sector’s ills: Corruption, mishandling of funds, frivolous account fees and money-changing hands for the sole purpose of collecting fees.

Financial institutions need the fast innovation promised by blockchain applications, and the tech entrepreneurs need the reputational credibility offered by financial institutions, making it a respectable symbiosis for the moment. Blockchain’s acceptance into the wider market will depend on partnerships like these – at least that’s what companies like Ripple hope for.

Recent entrant Ripple sees a similar efficiency gap in the market as it relates to global payments, and has stood apart from similar fintechs in garnering the trust of legitimate financial institutions. The likes of Santander, Bank of America and UBS are on board with seeing money across borders at the warp speed of information.

Instead of displacing comfy incumbent financial institutions, Ripple is securing blockchain’s most likely path to widespread acceptance: Partnership instead of disruption. Working to resolve some of international payments’ biggest challenges, fintechs have slow payments in their crosshairs. Ripple CEO Brad Garlinghouse posits the global financial services marketplace as a “speed problem, a cost problem, plus an error rate problem.”

Trust as a Commodity

While the age of big banks is far from over, with 21 million expected Bitcoin to hit the market by 2140, it appears that cryptocurrency, whatever its uses, isn’t going anywhere. And efficient technologies of this nature have one thing in common: Trust as a commodity.

Many have become disillusioned and distrustful with financial institutions since the Great Recession wiped billions of dollars from their investment and retirement accounts. The “one system of record” provided by blockchain promises a nearly infallible method of transacting, where everything is recorded and exposed on a publicly available and accessible ledger.

Blockchain systems hold weighty promises of financial access and destiny for the two billion underbanked on the planet. Serving the underbanked would also mean reducing friction points to opening a bank account: Lack of a credit score, minimum deposit requirements or foreign citizenship.

Blockchain surpasses conventional discussions of Bitcoin and its chances of replacing paper fiat to the larger narrative at hand, which is the unhinging of long-held power structures. Blockchain may be the answer we need to keep financial institutions transparent and accountable, while simultaneously providing access to funds for those whose socioeconomic status would previously not afford them.

With blockchain networks restructuring power to favor the individual over the institution, its future isn’t as shadowy as it may seem.

Lauren Ruef is a Research Analyst for Nvoicepay. She can be reached at lauren.ruef@nvoicepay.com.