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The Future of Business: Blockchain

by on September 16, 2018 4:00 AM

By Judy Loy, ChFC®, RICP® and CEO of Nestlerode & Loy, Inc.

For almost 25 years, the concept of a cryptocurrency and electronic cash has been studied and improvements are continually being made. The big breakthrough came when Bitcoin was released in January 2009. Bitcoin is a form of electronic cash without a central bank or single administrator. Why did it take so long to create a cryptocurrency that worked? Bitcoin and other cryptocurrencies finally succeeded because the founder of Bitcoin, Satoshi Nakamoto (a still unknown entity), also created the network cryptocurrencies exist on called Blockchain.

Electronic currencies, until the existence of Bitcoin, had an intermediary or government oversight. Companies, such as Visa or PayPal, all work for payment because there is a third party tracking payments, funds available and other means of business. Blockchain changed a currencies’ need for third party verification. In essence, the Blockchain created a peer-to-peer network without the need for a central bank or administrator.

To understand the potential for Blockchain, you must first have a rudimentary idea of how it works and why it is so powerful. Blockchain is a shared, unchangeable, digital ledger that facilitates the process of recording transactions and tracking assets. The assets can be tangible or intangible and virtually anything of value can be tracked. At its core, Blockchains are permanent and unalterable records of every transaction.

For owners of Bitcoin and other cryptocurrencies, Blockchain permitted all anonymous owners to view the entire ledger and verify each other’s transactions and holdings. Changes in the Blockchain cannot be tampered with and must be verified through cryptographic proof. I imagine many people reading this article and saying, “cryptographic?” I must admit, I only have slight knowledge of what cryptography is. Cryptography is the writing or solving of codes. It allows for storing and transmitting data in a particular form so that only those, for whom it is intended, can read and process it. This means that cryptography is part of what allows the Blockchain to be secure, private and tamper-free.  

Blockchain technology helped with the emergence of Bitcoin but its potential for business changes is explosive. For instance, in my industry, verification of assets and security is of utmost importance. An investor does not want to pay $5,000 for shares of Apple if the seller doesn’t actually own them.

Currently, we have third-party verification through brokerage and clearing firms. A transaction happens between two people and the brokerage firms confirm the money and the stock is available for the trade.  When I started in investments, trades took five business days to settle (known as T+5). Therefore, if you sold stock on Monday, you would have the money for your stock the following Monday. That amount of time was needed because many of the functions of the stock market were done manually. (Before my time, the markets closed on Wednesdays to give people time to sort and match trades manually.) As technology improved, transaction times and verification moved more quickly. For example, settlement times went from T+3 to T+2 in September 2017.  

Blockchain will also allow for a leap in security, risk reduction, trust and transparency. It will decentralize trading and allow for settlement on trades in mere minutes by allowing for instant verification. This helps with the cost of trading and the speed of money through our financial system.

Another industry that will take leaps forward in time and costs is supply chain management. Blockchain will permit verification of shipments, better tracking and cut down on paperwork needed to track shipments.

Auditing also becomes simplified by using the Blockchain in business. As soon as a transaction is complete and the chain is added to the block and it has been audited by all members of the Blockchain, there is no need to go back to verify or audit the transaction.

Another industry that can take advantage of Blockchain technology are car dealers. Car company leasing is cited in the IBM publication “Blockchain for Dummies,” which I highly recommend (The publication is free for download on IBM’s site.)  As cited in the IBM publication, a Blockchain ledger can be used by authorized  participants to “access, monitor, and analyze the state of a vehicle.” A closed network such as this would allow for cost and time savings.

There are many amazing opportunities being created by the use of Blockchain. Estimates put Blockchain at the point the Internet was in 1990 and it will be interesting to see how it progresses and if it makes as much of an impact as the internet.  

Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.

Judy Loy, ChFCâ, is a Registered Investment Advisor and CEO at Nestlerode & Loy Investment Advisors, State College, Pa. A graduate of Penn State University, Loy has been with the firm since 1992, assisting clients with retirement planning, brokerage services and investment advice. She can be reached at [email protected]
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