The modern financial system has a fundamental problem: It’s not designed for the Internet. Even though money and transactions are becoming increasingly digitized, we keep using payments rails that were originally designed for paper checks. And, in some ways, the financial system is less than compatible with the online world people are shopping and transacting in.
A good example of this conundrum is how the Internet has affected payments security. JPMorgan Chase, which suffered a data breach this past summer, will likely double its $250 million annual cyber security budget in the next five years. Our payments rails just weren’t built with advanced persistent threat attacks and malware in mind.
“All of the work that people are doing in cyber security, it’s really people are trying to patch for that problem… that our financial system wasn’t built for the Internet,” Will O’Brien, CEO of BitGo, said yesterday at a Money2020 panel on how traditional payments players can dabble in Bitcoin.
Bitcoin was built for the Internet. Strip away the currency aspect and look at the technology behind Bitcoin, and you have the first Internet protocol for storing and exchanging value. And that protocol leverages the Blockchain, the first open-source financial database that records everything that happens on the Bitcoin network and verifies all of that activity with a third party. The implications of the Blockchain technology could go well beyond payments. So there are opportunities for companies beyond Bitcoin startups to leverage it.
“Bitcoin is potentially the most important technology innovation of our lifetime. It has such far-reaching potential,” Cedric Dahl, CEO of Buttercoin, remarked. “The Blockchain has enabled something that has never been possible before: Two people who don’t know or trust each other can agree that they trust each other with something.”
The Bitcoin Blockchain could be used to verify more than just possession of funds for Bitcoin transactions. It could be leveraged to verify all sorts of records like legal documents. Or it could be used to verify the credit-worthiness of unbanked or underbanked individuals, Adam Ludwin, CEO of Chain.com, commented.
To continue reading this story, click here to go to Bank Systems & Technology.Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio