We’ve received multiple inquiries regarding Bitcoin and blockchain technology, and how disruptive it might be. Here are our thoughts on the recent technology.
As cryptocurrencies like “Bitcoin” have seen their values fluctuate wildly over the past two years, bitcoin, and blockchain, the underlying technology that powers it, have captured investors imaginations.
Blockchain at its heart is a distributed-ledger technology that employs cryptography to ensure the integrity of the data it stores. For all its hype, blockchain is basically just a novel approach to database architecture where control of the data is distributed among all the parties using it.
This architecture is enabled by cryptography and the use of tokens (i.e., cryptocurrencies) as incentives for participants to perform the work to ensure the data’s integrity.
What makes blockchain so disruptive is its shared ledger eliminates the need for intermediaries to establish trust and authenticate identity between two untrusted parties who want to transact business. As a result, blockchain has the potential to cut out the financial middlemen, so large money center banks are concerned. In particular, cryptocurrencies are gaining tractions a form of payment for e-commerce transactions where there is a high risk of fraud and/or chargebacks. While blockchain technology can be adopted by existing financial institutions to facilitate transactions, it has the potential to enable a new set of payment rails that circumvents the existing establishment. One example would be foreign currency exchanges could potentially be done for very little, which would wipe out billions in profits for the banking system as we know it today.
It is far from certain that bitcoin will become a lasting piece of the financial landscape or is just a passing fad.
While blockchain technology has the potential to become as ubiquitous as the internet over time, there are nevertheless many issues to be addressed. As with the internet, we will probably see a mixture of both blockchain native companies as well as companies like JP Morgan/Chase, adopting the technology to improve their existing business processes and to attack new market opportunities afforded by these new capabilities. We believe blockchain is a technology that will continue to garner increasing mindshare in the years to come.
If you would like to discuss Bitcoin and/or blockchain technology’s impact, we recommend speaking to a financial advisor at GBB. Please complete our contact form or give us a call at (916) 269-0671 to get in touch.