Blockchain — the disruptive transaction technology my colleague Ed Page wrote about recently — is itself being disrupted as companies look for patentable tweaks they can make to the open source code, to stake a claim in what many see as the future of financial exchange.
The beauty of blockchain technology is that it is, essentially, a community of nodes that share a single, encrypted, distributed database that provides transparency, security, and immutability to transactions. Each node is responsible for verifying a piece of each transaction, thus reducing the risk of external or internal security breaches. Further, a ledger system allows all parties involved in the blockchain to view all transactions.
Of all these benefits, it is the transparency and immutability of the transaction ledger that gives blockchain its value, which is why many advocates are raising red flags over a recent patent application for an “editable blockchain,” a counterintuitive mutation that would allow users to literally rewrite history.
According to these advocates, if we learned anything from the recent financial crisis, it is that transparency is our friend. Using editable blockchain introduces operational, regulatory, IT, and financial risk that isn’t present with the core technology or consistent with the underlying tenants of the platform.
Most financial institution policies, accounting procedures, and regulatory rules require that incorrect transactions (account opening, funds transfers, trade confirmations) be reversed. If an employee incorrectly triggers a transaction, the only way to correct the record is with a reversing entry. In this scenario both the mistake and the correction are logged — providing the transparency required in this heightened regulatory environment.
As mentioned in our previous blog post, we think blockchain, an innovation created to enable virtual currency exchange, has the potential to revolutionize electronic payments and usher in an era of real-time settlement and exchange. We will continue to monitor developments and weigh in here and with additional thought leadership as warranted.