Staying abreast of technology developments is a necessary aspect of leadership and management today. I recently came across a compelling article on hbr.org about blockchain and bitcoin technology.
“The Blockchain will Do to the Financial System What the Internet did to the Media” is an eye-grabbing headline. According to the authors, cryptocurrencies such as bitcoin and the underlying technology that powers it, blockchain, are poised to decentralize the financial system. They make some interesting analogies between the development and entrenchment of the Internet in our everyday lives. The example of how bitcoin works using the blockchain technology fails to fully illustrate how blockchain has the capability to upend the financial system:
“The code describes both a regulatory and an economic system. For example, transactions must satisfy certain rules before they can be accepted into the Bitcoin blockchain. Instead of writing rules and appointing a regulator to monitor for breaches, which is how the current financial system works, Bitcoin’s code sets the rules and the network checks for compliance…even Bitcoin’s “monetary policy” is written into its code: New money is issued every 10 minutes, and the supply is limited…a hard money rule similar to the gold standard.”
Their crucial argument, decentralization of the financial system, is a bit more tenable.
- Fewer intermediaries could reduce the current complex financial system
- Lower systemic risk through its inherent transparency
- Lower barriers to entry, allowing more participants, and therefore more competition
The authors, who are researchers at the MIT Digital Currency Initiative, are clearly invested in blockchain. While their explanation does not make me think the financial system is on the chopping block, there are some basic tenets (transparency and lower risk) that may in fact hold water. This is something to watch.