Finance and tech have always been two vastly different worlds. So how come that two giants in the industry , Microsoft and Bank of America, recently announced a partnership at the Sibos financial service event in Geneva? This can all be explained by the following two words; blockchain development. Blockchains are chains of blocks (obviously) where each block contains data varying from bank ledgers to testaments.To give an explanation of how it works I give the following example
Let’s say you have your testament stored in a blockchain. First your testament will be encrypted of course (you don’t want everyone to know that your brother gets less than your sister because you always had a fight with him) and then send to thousands of computers within the network. These computers in the network store your encrypted testament making it a chain of blocks. If for example your brother wants to change this testament by hacking one block, this will be noticed in the network because one testament is different from all the 999 other testaments stored in the network. So if your brother wants to change this testament unnoticed, it has to hack all thousand computers and change the testament at the same time. this is almost impossible making the blockchain network very secure.
This technology was originally developed for a digital currency, (later known as bitcoin) where the data stored was only limited to owners and coins. In 2014, a 18 year old Canadian introduced a different type of blockchain storing contracts instead of currency. Although this seems a little extension of the current network, the consequences of this little update can be huge. What makes the storage of the contacts such a big deal is that people can create and safely store public contracts cutting out the mediating person. So for example if person A wants to buy a house from person B, they create a public blockchain where they can arrange and safely store the contract making the real estate agent unnecessary.
By cutting out the mediator, the users not only save time and money, but also give simple access to a trusted market. Where nowadays people in the third world can’t compete on the global market because of the lack of trusted institutions, all they need in the future is a working internet connection. While this new innovation might be an advantage for the third world due to the lack of trusted institutions, people who work for trusted institutions in the western world fear that they could be replaced. So where Bank of America is now investing in blockchains to make their banking system better, ironically they might invest in their own extinction. Although it could take years before this system will be used worldwide and recognized (with the strong wall street lobby this could take much longer), but if this scenario becomes true it would be much better for the world.
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