A man walks by a wall of currency at Frost Bank. Photo by Scott Ball.
A man walks by the "Money Museum" at Frost Bank, a collection of coins and currency dating back to 1536. Credit: Scott Ball / San Antonio Report

The financial industry is abuzz about blockchain technology, ledgers, and bitcoin.

If you’re wondering what these are, you are not alone. UT Austin’s McCombs School of Business Alumni Chapter organized a panel as part of its education series Thursday at the Witte Museum to help participants understand the technology behind these terms and, more importantly, why it is heralded as game-changing for many industries.

Blockchain is the technology behind the digital currency bitcoin, but it has many other uses, too. Blockchain records and stores every transaction that occurs in a network, essentially eliminating the need for “trusted” third parties such as payment processors, auditors, legal services, brokerages, and other similar organizations.

A blockchain is a distributed database used to maintain a continuously growing list of records, or “blocks.” Each block contains a timestamp and a link to a previous block. The distributed digital ledger is used to record transactions, synchronizing across many computers so that the record cannot be altered retroactively without changing all subsequent blocks.

Hunter Stanco, vice president at Morgan Stanley and president of the McCombs School alumni chapter, moderated the panel discussion for an audience of about 150 professionals from various industry sectors hailing from San Antonio and Austin. The panelists not only explained these technologies, they touched upon the most important benefits and challenges associated with the implementation of blockchain technology.

Some people think bitcoin and blockchain technologies fuel illegal activity. Panelists emphasized that the blockchain validates transactions for trusted transfers.

“It prevents fraud, because everyone has a copy of all the transaction data,” said Bertrand Portier, business technology architect at IBM.

Digital ledger data is shared geographically across multiple sites, countries, or institutions with no central administrator or centralized data storage. In accounting, bookkeepers maintain a ledger of all the company’s transactions. The distributed digital ledger does this for all blockchain transactions across the participants in the transaction.

Bitcoin is a type of digital currency in which digital encryption techniques are used to regulate the units of currency and verify the transfer of funds, operating independently of any central bank. Created in 2009, there are no intermediaries or transaction fees, and no need to give your real name. Bitcoin is an application that runs on the blockchain.

The potential for blockchain to disrupt many industries and make digital transactions more democratic, secure, transparent, and efficient are appealing to entrepreneurs, startup companies, investors, global organizations, and governments alike.

Eliminating the need for intermediary businesses for validating transactions, such as escrow companies, can translate into streamlined processes and, thus, lower costs of doing business.

“We see a lot of promise here,” said Tim Brown, vice president of information technology advance research at USAA. He also sees the blockchain as an avenue to manage identity credentials.

“Often you are asked to show identity credentials, like a driver’s license, when the business doesn’t need that for your transaction, they only need it to validate your identity,” Brown said. “Using the blockchain to manage your identity credentials puts that control back in your hands.”

BanQu founder Ashish Gadnis also emphasized the blockchain’s benefits for validating noncurrency credentials. His company uses blockchain technology to provide economic identity credentials for those lacking digital or electronic resources, such as refugees or other displaced people.

Refugees fleeing dangerous living conditions often lack identity or economic credentials. Children in African countries often receive multiple vaccinations for the same disease from various healthcare organizations because they lack access to validated healthcare records. Many struggling financially are unable to use traditional banking systems and are a part of the “unbanked” population.

“The solution is to have networks where there’s equal access to the identity data on all sides,” Gadnis said. “Transaction identity means you can prove what has happened to you.”

The challenge lies in overcoming systemic corruption in transactional networks where the people who control the intermediary nodes may be co-opted to commit fraud.

“The good thing about blockchain is that everything can be validated,” said Prabhudev Konana, professor of information management at the McCombs School. However, Konana cautioned there will be resistance to adopting blockchain technology precisely because intermediate transactions can be prone to lucrative incentives in certain societies.

“The legal industry, title companies, and others will be resistant to the full implementation of blockchain,” Brown said. Using the analogy of retailers resisting the introduction of credit cards, Brown said consumer demand would help drive more use of blockchain.

Asked if widespread blockchain use would slash jobs in intermediary businesses, panelists shared their thoughts.

“Where those jobs will shift, I don’t know, but I can tell you it will be along the technological sector,” Brown said.

“Jobs are increasingly tied to technologies like blockchain, so students entering the workforce will need some training in technology in order to participate in this technology-intensive environment,” Konana said. “Some jobs will go away, but others will grow. Companies will need to hire skilled people to build the infrastructure to support blockchain’s use. People skilled in data management will be in demand also.”

Gadnis said blockchain would increase governments’ and nonprofits’ accountability of information, with entire business models transforming as a result. For people without access to banking or other resources, being able to verify their credentials would be groundbreaking.

“I think we have a good shot at ending poverty using blockchain,” Gadnis said.

“[At IBM] we think blockchain will do for trusted transactions what the internet did for communications,” Portier said.

When asked about potential challenges, panelists identified two possible risks – rules for using the blockchain network and security.

While blocks in a blockchain for a transaction cannot be altered, people using the business network for a blockchain transition can choose to ignore rules of governance. The governance of blockchain encompasses rules and incentives that bring blockchain users together without relying on any centralized organization – like a government – to reach consensus or enforce the rules.

“It’s not so much about the technology, but more about the governance, the rules for using the network,” Brown said.

“The network is also [only] as secure as the least secure node in the network,” Portier said. “Full stack blockchain is an approach that can help address this.”

Using a full-stack approach to blockchain implementation would be akin to using a full-stack software developer who masters every part of software technology development. Thus, there will be a demand for blockchain implementers who will take security into consideration at every step of development.

With more digital information available, from medical data, to financial and other credentials, validating identity credentials is a critical need, the panelists agreed. As local businesses such as USAA begin to implement blockchain technology, it is only a matter of time before consumers learn to recognize its benefits.

“Blockchain is going to be the validation for identity in the future,” Stanco said.

Iris Gonzalez writes about technology, life science and veteran affairs.