Blockchain Revolution

Attestation: For the first time in history, two parties who neither know nor trust each other can transact and do business. Verifying identity and

establishing trust is no longer the right and privilege of the financial intermediary. Moreover, in the context of financial services, the trust protocol takes on a double meaning. The blockchain can also establish trust when trust is needed by verifying the identity and capacity of any counterparty through a combination of past transaction history (on the blockchain), reputation scores based on aggregate reviews, and other social and economic indicators.

Cost: On the blockchain, the network both clears and settles peer-to-peer value transfers, and it does so continually so that its ledger is always up to date. For starters, if banks harnessed that capability, they could eliminate an estimated $20 billion in back-office expenses without changing their underlying business model, according to the Spanish bank Santander, though the actual number is surely much greater.¹² With radically lower costs, banks could offer individuals and businesses greater access to financial services, markets, and capital in underserved communities. This can be a boon not only to incumbents but also to scrappy upstarts and entrepreneurs everywhere.

Anyone, anywhere, with a smart phone and an Internet connection could tap into the vast arteries of global finance.

Speed: Today, remittances take three to seven days to settle. Stock trades take two to three days, whereas bank loan trades take on average a staggering twenty-three days to settle.¹³ The SWIFT network handles fifteen million payment orders a day between ten thousand financial institutions globally but takes days to clear and settle them.¹⁴ The same is true of the Automated Clearing House (ACH) system, which handles trillions of dollars of U.S. payments annually. The bitcoin network takes an average of ten minutes to clear and settle all transactions conducted during that period. Other blockchain networks are even faster, and new innovations, such as the Bitcoin Lightning Network, aim to dramatically scale the capacity of the bitcoin blockchain while dropping settlement and clearing times to a fraction of a second.¹⁵ “In the corresponding banking world, where you have a sender in one network and a receiver in another, you have to go through multiple ledgers, multiple intermediaries, multiple hops. Things can literally fail in the middle. There’s all kinds of capital requirements for that,” said Ripple Labs CEO Chris Larsen.¹⁶ Indeed, the shift to instant and frictionless value transfer would free up capital otherwise trapped in transit, bad news for anyone profiting from the float.