Written by Andreas Adriano, a senior communications officer in the IMF’s communications department, and Hunter Monroe, a senior economist in the IMF’s monetary and capital markets department, the article, “The Internet of Trust,” [PDF] focuses on the history of Bitcoin, its blockchain technology and how it can be used to benefit the financial sector.
When it was first introduced Bitcoin became the perfect avenue to provide an alternative to banks and central banks; however, with Bitcoin’s relative anonymity and its ease of trading it attracted criminals, causing it to have a bad reputation as law enforcement cracked down on it during 2013 and 2014.
It wasn’t long, though, before people started to realize that there was more to Bitcoin than people originally thought, according to the authors.
Tech entrepreneurs and the financial industry soon realized that the real news was under the hood – Bitcoin’s underlying distributed ledger technology. Essentially, this is a technology for verifying and recording transactions on a peer-to-peer basis without a central authority.
It upends a very basic tenet of payment systems: having one central, independent, and trusted bookkeeper that stores and validates all transactions – a role often played by central banks.
With Bitcoin, everyone on the Internet can validate and record transactions in their own copy of the ledger.
Bank Trust
Despite the fact that banks have tried to solve the problem of creating trust by acting as a trusted intermediary between individuals and companies, allowing them to pay the banks to make the transactions, this only works out well for the banks.
The authors state, that according to a McKinsey&Company report, banks extract a $1.7 trillion a year, 40 percent of their revenue, from global payment services. Not only that but despite the technological innovation, the cost of financial intermediation in the U.S. has not moved forward a great deal since the beginning of the 20th century.
Blockchain to Change the Way of Banks?
While the article seems to focus on being more for guidance, it does provide a good overview as to why blockchain technology is viewed as a revolution with many benefits for the financial sector, quoting the likes of Marc Andreessen, who founded Netscape, while still in college in 1992.
Many advocates of Bitcoin’s blockchain technology believe, though, that it can be used to transform the financial sector.
While the article ends by stating that it is probably too early to say whether blockchain is ‘the next Internet’, the authors agree that “the blockchain game is only beginning.”