29. Formation of a Private Blockchain Explains Optimizing the Reconciliation Procedures between Financial Institutions

The usage of blockchain in financial sector could revolutionize the situation fundamentally by reducing the significant amount of complexity of the reconciliation processes. This platform intends to make this process straightforward by performing only one computation and submitting a harmonized representation to the stakeholders, consequently eliminating dissimilarities in theory. 

To make this transformation take place, a greater part of mining instruments will fall behind the idea that it should correspond to three-quarters of the computing power of the network for two weeks in order to reveal that it runs the engine correctly and can consequently enforce this new standard reasonably. Experiencing any kind of bugs at this time will lead to solving problems at the earliest stage in order to prevent any risky situation before broader implementation.

It would be too optimistic and even unreal to expect that this technology could transform the payment industry in the next several years since the current technologic usage is not tailored to the performance of mass payment resources that require short-time responses, as it is the case with payment cards.

The formation of a private blockchain, shared with the smart contract tools, comes out to be the ultimate explanation to optimizing the reconciliation procedures between financial institutions at the same time as lasting visible to the supervisory body. In any type of transaction services this is supposed to ease the automatic transmission of verified information, while automating the confirmation procedures and definite supervisory and that is the reason why these segments would take an advantage to a great extent of optimization, effectiveness and protection.

The creation of new units of account for most cryptocurrencies that operate on blockchain platform is programmed once and for all by an intangible algorithm, without possibility of modification if not by a majority decision of its users. In that regard, new units in the bitcoin system, new units are created every ten minutes as compensation for the formation of blocks by miners and only in that way.

Initially fixed at 50 bitcoins per block, it is currently 25 bitcoins, i.e. a growth of the money supply in bitcoins in the order of 10 percent per year. This fee will be divided by two every four years, which implies a limit of 21 million which will be reached around 2140, though 99 percent of this limit will have been reached by 2032. The bitcoin is ultimately an intrinsically deflationary currency whose value is destined to grow over time, which should give it a competitive advantage as a store of value. The very low transaction fees explain the emergence of a third demand factor for bitcoins as a means of payment.

A number of online vendors, more particularly specialized in the provision of Internet services and the online sale of rather exotic items, now accept to be paid in bitcoins, due in particular to the almost total guarantees of anonymity associated with them. The latter factor of increasing demand for bitcoins is still in its infancy, if only because at present only a very small number of items can be paid for in bitcoins and most sellers continue to display their prices in dollars, euros and other currencies.

The battle between customary payment systems and peer-to-peer payment systems, and therefore between state currencies and cryptocurrencies, is likely to be the subject of regulation. In the camp of bitcoin and its derivatives, two positions are already taking configuration. The first, faithful to the purpose of the existent promoters, is to fight frontally against attempts at state control, to further modify the anonymity, invulnerability and closed nature of the system, even if it is at the cost of a less user-friendliness and increased consumption of resources.

This trend is illustrated, for example, by Darkcoin or the analogous Zerocoin project, which aims at complete anonymity of transactions. The other more conciliatory trend is alternatively to seek reputability by respecting the regulatory constraints and by giving the operators the means to satisfy them in the role they have chosen. This is the beginning of a division from which two manages of systems appear, where the biggest part of users choose to be in good standing with the authorities rather than defending central orientation.

It can hence be expected that a vast majority of users will select as reserve currency one of which they are sure that the value will not decrease over time, the bitcoin being a good candidate. Others will favor currencies standing on a material asset such as gold or currency guaranteed by the state, but in any case it is a subjective persuasion about the promise made by the money establishment.

It should be noted that the mere coexistence of several currencies is a protection of the public against the loss of value or the disappearance of one of them. At the first sign of depreciation of a currency, users could convert their assets into a safer one, which would certainly accelerate the decline of the fragile currency but prevent them from ruin. The position of each of the money issuers would therefore be delicate. They should be vigilant and quick to respond to the first signs of depreciation, but the numerousness of issuers would limit the effect of the bankruptcy of one of them, and the system as a whole would be robust.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

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