What are the applications of Blockchain?

Monday, 4 february 2019 | Brenda Rodríguez López

In the dawn of the Fourth Industrial Revolution, technology advances relentlessly: Big Data, machine learning, drones, robotics, the Internet of Things, Cloud Computing,... Undoubtedly, this commitment to innovation will have a great impact on the future of humanity. Many experts agree in pointing out that, among all these advances, Blockchain may play a fundamental role. As the Internet revolutionized the world of communication in the past, the development of Blockchain promises to produce quite a change, particularly, for the financial world. Where does the transformational force of Blockchain lie? Why is this technology so significant for the finance sector? How is the business world starting to apply this technology?

A few days ago, The CEU IAM Business School offered a masterclass on Blockchain and its application in the financial field which was carried out by María Concepción de Monteverde, a Blockchain Director at Banco Santander. In it, the Blockchain expert clarified some doubts about this technology which is still little known. Why is Blockchain so important for the financial world? What does Blockchain mean exactly? How is the business world taking advantage of its arrival? Below, we offer a summary of the main aspects that Monteverde addressed in this enlightening lecture.

What's new in Blockchain?

<<The history of Blockchain is similar to the one of the Internet>>, explained Monteverde. According to this specialist, the transformational power of the chain of blocks is similar to the one that once was experienced by the network of networks. Internet caused a great change to the world of communication, Blockchain aims to do the same, but with value. Monteverde added: <<When you send an email, a song or a document, you are sending a copy. But when we talk about value, we talk about stocks (money, bonds, intellectual property,...), and we really want to send the original ones. We do not want to keep a copy of them. This is what is called the "double spending problem">>. Blockchain offers a solution to this hurdle.

Value means assets, specifically the ownership of assets, and that value lives in ledgers. The Blockchain Director illustrated her explanation with the example of a bank. In this case, value is the money which is found in the banking system. Therefore, the bank becomes an entity of trust. These institutions are responsible for registering how much money each person has. When making a transfer, the value has to pass from one bank to another. In this operation, there are several intermediaries which participate (Compensation Chambers, payment processors...). Each of them has its own ledgers and systems. They do not trust each other so they need a third party which is in charge of making the reconciliations. So, Monteverde asked the following question: <<What would happen if all banks, all the entities of trust, shared the same registry of value? What would happen if all of them shared the same database?>>.

This specialist answered the question herself: <<We would not have to trust each other, we would rely on that database. With Blockchain, the value lives in the community, lives in everyone, because we are all sharing the same ledger. We no longer need to make reconciliations. In addition, this process is automatic and occurs in real time>>. The potential of Blockchain lies in the fact it is a secure, shared and distributed database which is capable of registering the ownership of any type of asset (not only financial), and it can also offer a new way of operating with them. This database makes possible to add transactions, but it cannot erase them, since it is unchangeable.