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AFP 2018 Blog
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Everyday Blockchain: As Simple as Possible

May 22, 2018

Everything should be made as simple as possible, but not simpler." – Albert Einstein
When it comes to the enormous power and sophistication of blockchain technology, our inboxes are bombarded daily by dozens of articles filled with buzzwords but short on information. None of them really explain how the technology works.

You don't need to be a mathematician (although I highly recommend it!) to acquire a solid grasp of the fundamental concepts. It is important to have a basic working knowledge so you can add value when the time comes to explore implementation of this mysterious new technology.

While buzzwords and reading articles are good things, the day will inevitably come when each of us will be pulled into a blockchain steering group project. You’ll be happy to have a strong basis of what is possible and what is not, and of the main challenges related to real-world applications.

Factors to Consider

For example: do you understand why all transactions in a blockchain must be public? Are there examples where the transactions are actually not public? Do you understand why, despite the data being visible to all, nobody can make up fake transactions in a blockchain? It is important to understand how the combination of these two apparently contradictory features is arranged.

It is also very crucial to examine the tremendous consumption of electricity linked to classic blockchain solutions. All this is in the name of the security and integrity of transaction data, but are the significant electricity costs worth it? You might decide to do some homework on different variations that promise to speed up the verification process and decrease the electrical bill.

Treasury Implementation

Next, you will be coming to the point where you are investigating the impact blockchain can have on your day-to-day job. Will you be asked to learn to code? No, that won't happen. But it is very possible that, in order to save money, your company will adopt a new payment system and you should be ready for that event. And it is very possible that nobody at your company, not even your CEO, will have a voice in such a decision.

It will be up to treasury professionals to determine how blockchain solutions will be designed.

Nonetheless, the key point to remember is that all the blockchain programmers in the world will have no clue on designing implementations for corporate treasury. Therefore, it will be up to treasury professionals to determine how blockchain solutions will be designed. Programmers need treasurers and treasurers need programmers if anything lasting is to be created and adopted.

What Lies Ahead

Finally, what will be the features of a future payment system based on blockchain?

There already are a few implementation solutions in place, with particular attention to international money transfers, trade finance and currencies. A couple of very specific characteristics of those three issues make them ideal training grounds for adoption. However, there still are crucial aspects that do not depend on the software or on the mathematics which will eventually determine the success or demise of the blockchain promise.

In particular, the presence of incumbents and barriers to entry will play a crucial role. Just think of some famous examples from history and you will see how this story could end in different ways. On the one hand, the Internet managed to become ubiquitous and revolutionize the economy. But on the other hand, history is littered with new, cheap and superior operating systems that did not survive the test of time and did not get adopted because they were unable to dislodge the incumbents. Again from a different angle, the iPod managed to enter and swipe the market clean even in the presence of incumbents.

It is important to consider a lot of different factors that could make or break the worldwide adoption and success of the blockchain. The jury is still out: this could be just another fad or could revolutionize the way we do business forever.

Be sure to attend my AFP 2018 session “Everyday Blockchain: What Corporate Treasury Learned from Bitcoin” to get to the bottom of all the issues I just hinted at. After the session you will be able to pass the ultimate test: explain blockchain to your grandfather. Remember: "as simple as possible but not simpler".

Francesco Tonin
FX Specialist
Bloomberg