Deloitte blockchain enigma paradox opportunity
Other virtual currencies in existence include Litecoin and Peercoin. They are commonly referred to as "cryptocurrencies". See Bank of England In trade finance, blockchain helps prevent duplicate financing of the same invoice by different banks.
The Steering Group released its report in February setting out its analysis and recommendations. Hong Kong has the potential to become a key blockchain technology hub through leveraging on its expertise in finance, logistics and other professional services.
This issue of Essentials aims to a describe the blockchain technology and its key features, b discuss its potential applications and initiatives being undertaken in the overseas financial markets, and c highlight the challenges of adopting the technology.
What is "blockchain" Blockchain is generally referred to as a database or digital ledger on which transactions are recorded. The term blockchain is derived from the two words "block" and "chain". An individual "block" refers to all of the transactions which have taken place within a fixed period of time. Each block is "chained" to the next block mathematically and sequentially to form a blockchain. Given the latest block, it is possible to access previous blocks linked together in the chain.
A blockchain database, thus, retains the complete history of all assets and instructions executed since the very first one - making its data verifiable and independently auditable. This in turn allows blockchain to be used as a ledger which can be shared and corroborated by anyone with the appropriate permissions. As mentioned above, one of the key attributes of the blockchain technology is that it can eliminate the need for a central intermediary to verify and clear transactions.
The difference between the conventional approach and blockchain-based approach to transaction clearance is illustrated in Figure 1 below. In a blockchain network, each computer maintains an identical copy of the blockchain, which is updated automatically every time a new transaction takes place.
Computers verify each transaction with sophisticated algorithms to confirm the transfer of value and other information and create a historical ledger of all valid activities. The network computers that are processing the transactions are often spread across places and not owned or controlled by any single entity.
Since a blockchain is distributed in the network instead of being stored on a central server, it is sometimes referred to as a distributed ledger. Figure 1 - Two different approaches to transaction clearance Sources: Such a decentralized system will likely consume more computing and network resources than a centralized system.
As the size of the blockchain continues to grow with more data added, the resources required to operate the system may be more extensive and this draws concern whether the blockchain technology is suitable for large-scale applications;. While a blockchain application can be operated by institutions in private networks, there are still issues over data privacy.
For example, it may be possible to deduce a party's identity inappropriately based on the transactions or through access to a network user that has the permission to decrypt the data.
For two decades there has been discussion about whether or not larger quantum computers could break public-key cryptographic systems, if and when they arrive with sufficient "qbits". In addition, there are implications of moving an ever-growing chain of blocks around a distributed set of participants.
The International Criminal Police Organization has cautioned that the blockchain technology currently utilized by virtual currencies is vulnerable to the cyber threat that malicious software and other illegal data may be embedded in the transactions and spread across the blockchain; 17 Legend symbol denoting See International Criminal Police Organization As pinpointed by the Financial Conduct Authority of the United Kingdom, innovation can be an iterative process and in order to give innovators "space" to develop their solutions, the Authority will not take a stance until the blockchain application is clearer.
It nevertheless recognizes that there are a lot of regulatory and consumer issues that will need to be addressed as the blockchain technology evolves. Indeed, successful application of the blockchain technology requires an effective regulatory regime to ensure that the technology is resilient to shocks or criminal activities. Q3 September Central Bank Cryptocurrencies September The economics of distributed ledger technologies in securities settlement August Blockchains, Distributed Ledgers and Funds Transfer: An Overview August Realizing the Potential of Blockchain June Fintech and Financial Services: Initial Considerations June Global Fintech Report April Will be the year that Blockchain is regulated?
The Pulse of Fintech Q1 April Global Crytocurrency Benchmarking Study March Blockchain and Financial Inclusion March Successfuly navigating changes to payments regulations February How blockchain technology could change our lives February State of Regulatory Reform A Special Report January