1. On December 15, 2015, the Securities and Exchange Commission approved a plan from online retailer
Overstock.com to issue company stock via the Internet, signaling a significant shift in the way financial
securities will be distributed and traded in the years to come. The underlying technology is Bitcoin’s
Blockchain.
If you are following the buzz around disruptive technologies, you are probably aware of Bitcoin as a
popular (and mostly controversial) cryptocurrency — a form of money that can be transferred securely
and anonymously across a widely distributed peer-to-peer network. It is the most visible and
controversial application built on a disruptive technology known as Bitcoin’s Blockchain.
The true wonder behind bitcoin is the public ledger that supports the system, the Blockchain.
The Blockchain is a record kept by an impartial and automated “bookkeeper” who solely adds new entries
with a date, time, ownership and a value stamp. It is essentially a ledger of all legitimate transactions that
have occurred on the network so far that is maintained by the collaborative efforts of all the nodes in the
network.

2. The chronological order and identities in transactions aren’t public (that’s where the crypto part comes
from, and that’s where people have trust issues with Bitcoin), but the record of exchange is public. This
technology is probably far more significant than Bitcoin itself, even if it often has to settle for a supporting
role in the grander narrative of this currency.
The process is automatic, based on consensus, and fully auditable. That creates a “trustless” system
where nobody has to put their faith in anyone else, because the Bitcoin network itself is guaranteed to
keep a fair and accurate record of which bitcoins belong to who.
The Bitcoin Blockchain is built up over time, as new transactions are added to the ledger. Whenever two
people exchange bitcoins, an encrypted record of the transaction is sent out to all other nodes in the
Bitcoin network. The other nodes verify the transaction by performing complex cryptographic calculations
on the data in the record, and notify one another each time a new “block” of transactions is confirmed as
legitimate (every 10 minutes). When a majority of the nodes agree that a block passes muster, they all
add it to the ledger and use the updated version as a cryptographic basis for encrypting and verifying
future transactions.
That way, the Blockchain can record an accurate history of Bitcoin exchanges and, because it’s constantly
being extended and verified collectively, is basically impervious to fraud. You can consider Bitcoin as a
“shared single source of truth” over the network.
Now we come to the fun part. The ledger, or Blockchain, doesn’t care if the Bitcoin represents a certain
amount of Euros or dollars, or anything else of value for that matter. The users can decide for themselves
what a unit of Bitcoin represents. Each Bitcoin unit is individually identifiable and programmable. This
means that users can assign properties to each unit.
Users can decide to program a unit to represent a currency, a share in a company, a unit of energy, or a
digital certificate of ownership, or anything of value. Because of this, Bitcoin is much more than simply
money and payments. A bitcoin can represent any kind of property, a barrel of oil, award credits, or a
vote during elections.
Imagine a healthcare allowance in USD that can only be used for paying for services at certified healthcare
providers. In this case, finding out if someone actually follows the rules is a huge operational process
prone to fraud. If you could program the rules in the currency itself, and the unit cannot be used for
anything other than healthcare payment, you will automatically ensure that the rules are followed.
Compliancy upfront!
A company can control its spending in the same way. By programing budgets for salaries, sales and
marketing, machinery, maintenance, and more, any company can ensure that money is spent only for
these purposes, making the CFO’s job much easier.
Imagine hundreds of documents floating around in trade finance. If one could program a unit to represent
a specific document with date, time, and ownership stamp, the operational overheads of managing these
documents will reduce drastically.
In capital markets, potential trade clearing and settlement time reductions using Blockchain technology
have been forecast to decrease these processes to as little as ten minutes – around 99% of the traditional
three-day standard!
Automating these and many more processes by programmable units over Blockchain, businesses can gain
tremendous efficiency and trust in to the system.

3. The opportunities are limitless.
Many large banks and insurance companies today are experimenting with Blockchain technology,
creating use cases in payments, trade finance, securities, wealth management, and more. These
innovation labs are building applications using this new technology, mostly keeping them separate from
their legacy applications since integration costs are high. In the next two or three years, as technology
adoption expands, we will see a lot of organizations investing in building capabilities in integration, APIs,
new applications, and testing of Blockchain technology.
Regulators have raised issues with anonymity of the transactions. Existing regulatory frameworks will also
need to evolve to address issues of taxation, national security, and money laundering, since Blockchain
can seamlessly facilitate cross-border transfers.
Some may see it as a new passing fad. While some may view it as new disruptive technology threatening
the conventional way of doing transactions by removing the middle men. Regulators may see it as a
ruinous tool for laundering money for illegal purposes. No matter where you stand, you can’t avoid the
potential implications of Bitcoin and Blockchain in business, or, in fact, on daily life. While today nobody
can imagine life without the Internet, will we someday feel the same about Blockchain?
As the title of this blog suggests, you can choose to either love it or hate it, but you can’t afford to ignore
it.
Kaustubh Tare
Vertical Business Head - Financial Services
Kaustubh has a deep understanding of global markets in the areas of core banking
transformation, risk and compliance, financial services analytics, asset and wealth
management, and payments and lending. Kaustubh firmly believes that focusing on the
customer and their success should always be the top priority, and is the basis of any
long-term relationship as a trusted partner.
For more information, visit www.quinnox.com

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