Lately in the financial sector, there has been a lot of talk about the EU’s General Data Protection Regulation (GDPR). While most of what I see has been focused on how GDPR will protect consumers’ data, there is another way to look at its purpose. As we discuss in our previous blog about GDPR and the second Payments Service Directive (PSD2), GDPR is not meant to simply protect data—it is designed to give individuals more control over their own data. Similarly, while a lot of the talk surrounding blockchain has centered around the viability of cryptocurrencies, I would argue that the power of blockchain is its potential to give data ownership back to the individual.
Explain Blockchain to Me One More Time
Blockchain can be described in a number of ways, but there are two descriptions that together do a great job not only of explaining blockchain, but also of highlighting its power. The first is from Don and Alex Tapscott’s book, Blockchain Revolution. In it, they describe the blockchain as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
The second definition is from Ben Dickson in an article in The Next Web. Here it is described as “a decentralized database where data is replicated across several unrelated nodes. No single node can act as gatekeeper and assume control of your data.” These two explanations get at the heart of why people are so excited about the potential of blockchain. It’s an incorruptible (read, safe) way for people to assume control over anything of value, including their data.
Who Owns Your Data Now?
The internet is currently a place of centralized power. It didn’t start out that way, but companies like Facebook and Google have come to monopolize the services that support the internet. I’m not here to argue whether this is good or bad, it just is. We have all come to rely on companies that provide us with services, apparently for free. How do they do this? Other companies pay them a lot of money to use your data.
While you may be a Facebook user, you aren’t actually Facebook’s customer. Facebook’s true customers are the companies that buy access to users’ data and then make advertisements tailor-made for each user. That’s how Facebook made $40 billion in revenue in 2017. You may have heard the saying, “If you’re not paying for it, you’re the product.” In the case of Facebook and Google, it’s true.
How Could Blockchain Change Things?
A blockchain is decentralized and cuts out any middlemen. Copies of all data are distributed in the process of building the blockchain; this makes the system stronger while ensuring it is almost entirely unhackable. Since blockchain creates a decentralized system without a corporate gatekeeper, participants retain control of their own data. In fact, users in a blockchain system could have the choice, for each piece of data they create, of whether or not they want third parties to have access to it. A great example of such a system is Blockstack, a blockchain-based browser in which service providers do not own user data. Users are given a blockchain-based identity which they own and take with them to any new application they want to use.
There are several blockchain startups and platforms out there, but we’re still a long way from an internet where most major functions and activities operate on a blockchain-based back end. Some people see bitcoin’s plunge in value as a sign that blockchain technology is not the way of the future. Others see the plunge as we now view the dot-com bubble and subsequent crash. The crash did not put an end to the internet. In some ways it marked a rebirth of the internet. Blockchain, in that view, is being reborn and better than ever.
What Does Blockchain Mean for Banks?
It’s easy to see why banks would be suspicious of blockchain. After all, in the bitcoin example, banks are the middleman that gets cut out of the equation. If banks are able to look past this, however, they’ll see that blockchain has a lot to offer.
According to a Santander InnoVentures study, it’s estimated that distributed ledger technologies could reduce the infrastructure costs of banks by $15-$20 billion per year by 2022. These cost savings would be in the areas of cross-border payments, securities trading, and regulatory compliance. Blockchain would lead to a reduction in manual processing, which would leave employees more time to focus on value-added activities.
Blockchain technology can help institutions operate faster and cheaper. These institutions will also have a lower error rate, fewer risks, a lower capital requirement, and be less vulnerable to cyberattacks. I don’t know of any bank that wouldn’t be interested in those benefits.
Interested in talking blockchain or other technologies in the financial sector? Contact me any time at firstname.lastname@example.org. If you’re looking for a Blockchainn primer, check out our whitepaper, Understanding Blockchain: The Powerful Technology Behind Cryptocurrency.