[Bit]coin flipping: Bitcoin’s blockchain technology is breaking its promise
Bitcoin’s blockchain technology was originally created to “avoid banks,” but according to an article by the International Monetary Fund (IMF), this technology “may end up helping them.”
The International Monetary Fund’s senior communications officer Andreas Adriano and senior economist Hunter Monroe have unintentionally shattered everything Bitcoin’s blockchain stands for. The article titled The Internet of Trust was published in Finance and Development magazine.
The authors weigh in on the simplicity and speed of transactions and inevitably include Bitcoin in the conversation as they ponder on digital disruption.
Bitcoin—or more precisely, the underlying technology that allows it to function, called distributed ledgers, or blockchain—could allow what many see as radical rewiring of the financial sector.
Blockchain: A different kind of disrupter
Adriano and Monroe first revisit the history of Bitcoin and how it “grabbed the imagination of libertarians who wanted to get rid of, or at least have an alternative to, banks and central banks.” They soon conclude that this digital currency’s blockchain technology is “the real news” because it plays the role that is more often than not played by central banks, namely to verify and record transactions on a peer-to-peer basis without a central authority.
Bitcoin suddenly enabled everyone to validate and record transactions in their own code of the ledger. As U.S. entrepreneur and Internet pioneer Marc Andreessen said in a New York Times article two years ago, “Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.”
One of the blockchain’s main benefits is that it can be used to completely transform the financial sector by decreasing the settlement time for securities transactions (since less money must be set aside to cover credit and settlement risks). But its potential does not stop here. Adriano cited Marc Bayle, the European Central Bank’s director general of market infrastructure and payments, as saying that even if “there’s nothing in the current technologies preventing instant settlement,” blockchain or a similar distributed ledger technology may evolve to become useful in central banks, despite their current limitations and the conceptual tension between distributed and central ledgers.
The authors concluded that “it is probably too early to say whether blockchain is ‘the next Internet’ or just an incremental evolution,” but also acknowledged that the blockchain game is only beginning.