ETA Expert Insights: Roundtable on Blockchain

By Adam O’Hare, Moov Financial
ETA Technology Committee

Understanding what blockchain and distributed ledger technology are and how they work has become essential for all payments professionals. Without understanding the underlying technology, those in the payments industry risk being blindsided by these advances. The following are the findings from a recent roundtable to demystify the structure, benefits, and significance of blockchain and distributed ledger.

KEY TAKEAWAYS

• Separate the tech from the money — Blockchain and distributed ledgers are tech concepts that can be used to create a wide range of tools; currency and financial transactions are just one example application. Blockchains and distributed ledgers are independent concepts which do not have to be used together. They are often, particuarly in cryptocurrency applications, but it is not required.
• Blockchain is a database — A blockchain is simply a type of database. It’s a way to store information. One of the most important aspects of a blockchain is that each piece of data, or “block,” is uniquely linked to the data specifically added before and after it and that order cannot be changed; just like the links in a chain. Hence the name blockchain.
• Distributed Ledger is an infrastructure — A distributed ledger is a style of infrastructure in which copies of the dataset exist in multiple locations. When new data (such as transaction) is added in one location, the data is also sent to several other locations. Those other locations must acknowledge the new data and confirm its action before it’s accepted across the network as an official record.
• Advantages and disadvantages —
  • Advantages: The data linkage of a blockchain means information cannot be deleted or altered once it is saved. It’s a permanent record. The Distributed Ledger infrastructure delivers built in redundancy and decentralization.
  • Disadvantages: The communication and confirmation of new data across multiple copies of the chain can be very slow, meaning one transaction can take several minutes to process.
• Crypto still faces a long, uphill battle — There are several blockades to using any cryptocurrency as a common payments instrument — price volatility, lack of legal and regulatory certainty, slow transaction speeds, and limited acceptance/usage tools for merchants and consumers.
• The government is getting involved — The U.S. Government and the Federal Reserve are actively researching and considering use cases for a government issued cryptocurrency coin, a Central Bank Digital Currency (CBDC). A CBDC would use blockchain ledger technology, but be based on the value of the USD and likely operated by existing government and financial institutions. Combining new technologies with existing currency and familiar players may fast track the use case for digital money, but also runs counter to the decentralized spirit of cryptocurrency’s foundation.

The roundtable was led by Adam O’Hare, a member of the ETA Technology Committee. Interested in joining the committee? ETA’s committee structure harnesses the collective expertise of ETA and its members to help navigate industry wide opportunities and challenges. Participation is open to ETA members. Learn more here.