STORY HIGHLIGHTS- Direct financial interactions can be facilitated
through the use of blockchain systems that
promote data transparency and trust. - Innovations in financial systems reduce transaction
costs, but the suitability of blockchain for specific
use cases must be determined. - Blockchain systems can be used as a platform for
the provision of public and financial services. - Standards, regulations and best practices must
be improved to regulate blockchain systems and
ensure that they meet financial, cybersecurity and
privacy laws.
18 ENGINEERING NEWS | December 8–14, 2017 LO
T
rust is the underlying factor
supporting financial systems – from
the value of currency and financial
transactions to public spending. Similarly,
trust underpins almost all information
transfers, and money is a medium that
allows people to ‘communicate’ value
throughout an economy, says financial
services firm Investec Bank economic
strategist Chris Becker.
Transactions and commercial informa-
tion sharing are usually facilitated by
intermediaries, such as central banks,
owing to the need to ensure trust in the
process. The reputation of the interme-
diaries is key to the smooth functioning
of the system and flow of transactions.
However, intermediaries drive up
costs and the time for transactions to
be carried out, notwithstanding that
the actual processes used to facilitate
transactions are not always public or
transparent, although they are subject
to stringent regulations.
“Every time there has been an inno-
vation in financial systems, the costs of
transactions were reduced, which led to
greater economic activity,” highlights
financial services firm Efficient Group
chief economist Dawie Roodt.New information technologies, such
as the encrypted, distributed-ledger tech-
nology known as blockchain, can remove
the need for central facilitators by providing
a framework in which secure transactions
can be done directly between parties and
reduce the costs of transactions.
“A blockchain acts as a decentralised,
automated ledger that records and verifies
digital events and transactions, and stores
them in a secure global network. It is a
globally accessible, but secure, database
that acts like an electronic filing cabinet,”
says information technology services
multinational Wipro Technologies global
payments practice executive head Mary
Ann Francis.
Blockchain systems use a “trust protocol”and all information recorded and stored
by a blockchain is done by consensus.
The process is not centralised, without
the need for organisations to validate the
entities or the transactions, or to manage
the reconciliation of ledgers, and makes
payments and settlements faster, cheaper
and more transparent, she says.
“The beauty and elegance of the solution
lies in the fact that all parties agree that
the information captured within a ‘block’
and representing a transaction or trans-
actions is an objective representation of
the transactions cryptographically secured
and stored in an external, public ledger.
The transactions and money transfers
can, therefore, be tracked and verified,”
says enterprise data management solutions
firm Epi-Use manager Phillip Loots.
Trust in a blockchain system is ensured
through the underlying protocol of the
blockchain. Each subsequent ‘block’ in the
chain refers to and builds on earlier blocks,
each of which is encrypted, which means
that a blockchain becomes exponentially
more difficult to compromise as it grows,
says multinational law firm Hogan Lovells
South Africa partner and technology,
media and telecommunications head
Leishen Pillay.COVERSTORY
BLOCKCHAINCHAINS OF TRUST
Blockchain set to change transactions, information flow and business processes
OPEN COLLABORATION
Blockchain systems can be used for various
government functions and allow for the services to
be scaled, enabling faster, cheaper and transparent
public services to be deliveredSource: BloombergSCHALK BURGER | CREAMER MEDIA SENIOR CONTRIBUTING EDITOR