Via The New York Times : A new report from the World Economic Forum predicts that the underlying technology introduced by the virtual currency Bitcoin will come to occupy a central place in the global financial system.
A report released Friday morning by the forum, a convening organization for the global elite, is one of the strongest endorsements yet for a new technology — the blockchain — that has become the talk of the financial industry, despite the shadowy origins of Bitcoin.
“Rather than to stay at the margins of the finance industry blockchain will become the beating heart of it,” the head of financial services industries at the World Economic Forum, Giancarlo Bruno, said in a statement released with the report.
The blockchain originally referred to the database where all Bitcoin transactions are recorded and stored.
Unlike existing financial ledgers or databases used by banks and other institutions, the blockchain is updated and maintained not by a single company or government. Instead it is run by a network of users. It’s akin to the way Wikipedia is maintained by users around the globe.
Initially, bank executives shied away from endorsing Bitcoin because it had been used for drugs and crime. Now, however, many have focused on ways to create blockchains without using Bitcoins for transactions in any way.
This is attractive because blockchains — or “distributed ledgers,” as they are often described — could offer a new way to move money and track transactions across borders and other networks in a more secure, transparent and effective way than the current system.
Distributed ledgers are often viewed as most attractive to industries with businesses that lack a central institution they can trust to keep their records.
The World Economic Forum report notes that most developments are likely to happen behind the scenes. So consumers won’t see the changes to infrastructure, but the changes could lead to cheaper and faster financial services. The report says the technology could help improve both mainstream transactions, like global payments and stock trading, and lesser-known areas like trade finance and contingent convertible bonds.
The 130-page report from the forum is the product of a year of research and five gatherings of executives from several major institutions, including JPMorgan Chase, Visa, MasterCard and BlackRock.
The report estimates that 80 percent of banks around the world could start distributed ledger projects by next year. Large central banks are also studying how the blockchain will alter the way money moves around the globe.
Most banks have already put together blockchain working groups and released research reports hailing the potentially transformative effect of the technology.
But few real-world uses of the blockchain have come to fruition, other than Bitcoin itself. That has led to some questions about whether the blockchain is the proverbial solution looking for a problem, rather than an innovation that will be used widely.
Existing virtual currencies have continued to struggle with security problems. One of the largest Bitcoin exchanges, Bitfinex, recently lost more than $60 million worth of Bitcoin in a hacking — the latest of several such incidents.
The World Economic Forum report suggests that it will take some time for such problems to be worked out. In addition to the technology issues, the report says that the industry will have to work with governments to create standard rules and laws to govern transactions.
The report does not make a single mention of Bitcoin. That mirrors the pronouncements from banks, which have often said that they can harness distributed ledgers without using existing virtual currencies. Rather, these ledgers would be run by groups of institutions that want to keep common records.
Just this week, 15 global banks, including Wells Fargo and UBS, said that they had completed a prototype of a distributed ledger that could track trade financing around the globe — providing a single record for a series of scattered, hard-to-track transactions.