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Blockchain – A Revolutionary Technology

Lou Rohman, Vice President, XBRL Services, Merrill Corporation | August 04, 2016

What’s Blockchain?

Keep an eye on blockchain. It’s one of the “next big things” in the FinTech world that will have revolutionary impact on business transactions. So the question arises, what is blockchain?

Blockchain is a distributed-ledger technology. To understand it, first consider that currently the world’s financial transactions are recorded in ledgers which track transactions of a particular type. Most of these ledgers today reside within the walls of an individual company. The downside of this is that any given transaction is recorded in the ledgers of many different companies, each of which needs to know information about the transaction. And it’s not just the buyer and seller that need to know about a transaction; there may be a commission on the sale, a transaction fee, a factored receivable, a concerned regulator, a clearing agent, an auditor and more. Recording the same transaction in multiple ledgers creates the need for reconciliation of ledgers, increased likelihood of errors, multiple sources, and the duplicative cost to record the transaction in the ledgers of multiple companies. All of this for the same transaction.

Enter blockchain, which is a new database technology that creates one ledger which is “distributed” and available to all the appropriate parties. The blockchain is decentralized (visualize a database outside of your company that has no one entity as the administrator), shared (the appropriate individuals and entities have the ability to add transactions to the database and obtain appropriate information), secure (a clever and complex methodology is involved), and replicated (if the database fails in one location, it survives in another).

Use of Blockchain

Anywhere people or organizations need to rely on a single source of secure and valid information, blockchain can help. Financial institutions and enterprises see the potential to instantly execute and verify transactions — unburdened by the cost and slowdown of a middleman, and with minimal risk of fraud. Applications range from managing traditional financial transactions, to tracking the ownership of assets and the movement of assets through a supply chain, and even the ability to create and enforce digital contracts.

It’s more than hype. As the Wall Street Journal explained in a recent blog post, “Today, more than 40 top financial institutions and growing number of firms across industries are experimenting with distributed ledger technology as a secure and transparent way to digitally track the ownership of assets.” Even SEC Chairwoman Mary Jo White acknowledged the powerful potential of blockchain in a recent keynote address, saying that the technology “has the potential to modernize, simplify, or even potentially replace, current trading and clearing and settlement operations.”

I recently participated in a seminar hosted by XBRL US on blockchain. The seminar featured some great discussion on blockchain and considered the potential connection to XBRL. Whether blockchain and XBRL, two standards-based technologies, complement each other or directly interact is yet to be determined. XBRL US is staying close to this evolving topic.

I’ll be keeping a close eye on blockchain. So should you.

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