What does Bitcoin have to do with banks? Maybe more than you think. Thirty major banks are exploring how they can use the technology that powers the cryptocurrency to make financial transactions cheaper, faster, and safer. Called blockchain, the technology relies on what is known as a distributed ledger—transaction records are kept in a decentralized database spread across networks of computers instead of in one central location.
Each computer in the network is required to approve new transactions, using cryptography to ensure that sales and purchases are legitimate. It would be extremely difficult – some would say impossible – to tamper with previously recorded transactions, and the bank staff using the network can see every single sale and purchase that has ever taken place.
What’s more, transactions take place directly between buyers and sellers, with no need for middlemen to clear the deal. As Dan O’Prey, Chief Marketing Officer for Digital Asset Holdings, put it at Credit Suisse’s Emerging Markets Leadership Forum in San Francisco: “It’s a unified record of the truth.” Digital Asset Holdings is helping banks create tools that use blockchain technology to trade assets such as syndicated loans and bonds, some of which are expected to go live this year.