BNP Paribas, a large France-based bank has made a rather shocking admission: Bitcoin based technology, and specifically the blockchain, could make securities firms obsolete. BNP paribas, or at least an analyst writing for the company, is not referring to banks, but specifically those companies that facilitate the trading of company shares and other types of financial instruments.
Before anyone gets too excited, however, it’s important to note that the analysis was made by one company analyst, Johann Palychata, writing for the company’s magazine “Quintessence”. Digging a bit deeper into the analyst’s logic, however, the argument does indeed appear to be pretty sound. Let’s dig into some of the details.
One of the most beautiful things about bitcoin, and one that is acknowledged by Palychata, is that the blockchain makes it very easy for parties to determine that other parties actually own the bitcoins in question. Yes, the actual identity of the parties conducting the trades is often hidden, but behind a veil of anonymity the block chain actually provides a lot of transparency. Despite the millions of bitcoins in circulation, it’s actually very easy to see where the bitcoins are going and when. Ownership is rarely, if ever, in question.
BNPparibas believes that blockchain-type technology could be used to track financial securities. In the modern financial world a company can have millions upon millions of shares being traded on financial markets. So how then do companies and stock markets keep track of all of those shares? Ownership of shares changes day-to-day, and second-to-second.
Right now, the financial industry relies on a large number of financial securities firms to keep track of shares. Massive computerized stock markets and other technologies are also used to keep track of shares. As you can imagine, it’s a big, complicated mess and it’s very expensive to maintain. For example, stock markets can cost millions of dollars per year to run. Meanwhile, conducting a trade through a financial security firm will likely set back individual traders several dollars per trade. And the question we have to ask ourselves is “why?”
Bitcoin-based technology, and here the BNP paribas analyst agrees, has the potential to disrupt the financial services industry. If a sort of blockchain could be created to track the financial transaction and ownership of financial instruments, the technological breakthrough could potentially disrupt and change the entire financial industry.
Validating ownership for financial instruments and tracking who owns what is currently a big complicated mess, or at least it is for just about every trader outside of bitcoin. For bitcoin, however, tracking the “anonymous who” who owns what is part and parcel of the blockchain. The larger bitcoin community comes together and through mining they create the blocks of information necessary to track each and every transaction.
So far, the blockchain has proven to be one of the most effective and advanced technologies for tracking huge amounts of fast changing data. In bitcoin’s case this means the flow of bitcoins from various wallets. For stock markets it could mean the flock of stocks and bonds. And who knows how many other applications bitcoin’s blockchain technology could be applied too.
As Palychata notes, “the development of the blockchain should be considered as an invention like the steam or combustion engine.” In other words, the blockchain technology that could literally reshape the world and human civilization.