Recently I learned everything I need to know about cryptocurrencies from a Lyft driver.
Yes, that's right – a couple of weeks ago, while I was driving to the Oregon Brewers Festival with my good friend Stef, I pulled up some ideas for my next column, one of which is blockchain and cryptocurrencies. Our driver Lyft, Tony, interposed himself with: "I was about to say, why do not you write about it? It's something I know a lot about."
For the next 30 minutes, Tony, a former IT professional, provided detailed descriptions of the blockchain, bitcoin history, the latest initiatives related to the cryptocurrency in the Portland area and technology that could potentially break the blockchain. He closed the conversation telling us all about CryptoKitties, a game based on blockchain technology that allows players to buy, sell, trade and breed unique animated cats. (They are very real, by the way, and could give a completely new meaning to the concept of becoming a cat woman – visit cryptokitties.co for more information.)
I will confess that among all the subjects treated to CU Times this is one of the most difficult for me to wrap my mind. But since the cryptocurrency news began to appear in our feeds, I asked myself: what does it mean for credit unions? It's a menace? Something they should embrace? Just one of those things that they will have to adapt to, like the Internet and smartphones?
Before I could reflect on those questions, I had to understand some basics.
Blockchain and Bitcoin 101
In June, I added a visual guide published by Reuters, "Blockchain explained: do you understand the technology that underlies bitcoin?" This, together with Tony's informal conference, obviously helped me to understand the basics of what is blockchain and bitcoin, and how they are linked to one another. Here's what I know:
- A blockchain is a shared database across a computer network. It consists of information records, grouped into "blocks", which are then linked together to form a "chain". When information (such as the details of a money exchange between two people) is first presented as a record, the computers in the network, called "nodes", select to confirm that it is valid. The accepted record is added to a block that is assigned a unique code called hash; the block also contains the hash of the previous block. The blocks are linked in a specific order based on their hash codes.
- No person or entity has control of a blockchain: it is decentralized and has no "master". It is open to all and all users are anonymous. This creates a problem of trust between users, so to solve the problem, new computers trying to merge a blockchain must pass a test called "consensus model".
- Blockchain is the technology used to record transactions involving bitcoins, a type of cryptocurrency (a digital means of exchange), but it is not the only thing for which it can be used. Other uses include simplifying the registration of payments at financial institutions, checking the chronology of products whose commercial records are stored on a blockchain, storing information on medical history and ownership documents, and creating test-worthy systems. of rig.
Average for UC?
Well, according to the list of possible blockchain uses in the Reuters guide, technology could help credit unions simplify their payment transactions and save on their costs. It's a good thing! Furthermore, the decentralized format of blockchain technology is perfectly in line with the philosophy of credit unions. All users of blockchain are equal controllers of the system and all members of the credit union are equal owners of their credit union. The leaders of CUNA and the Mountain West Credit Union Association came across this a couple of years ago when they launched CULedger, a consortium of US unions that explored potential use cases for distributed accounting technology. MyCUID has recently been released, a tool that will provide the members of the CU with a lifetime, portable digital identity (CULedger's leaders have noticed that they do not enter the cryptocurrency space at all).
The flipside of blockchain technology brings opportunities for credit unions are attracting fintechs – potential competitors – trying to offer cheap financial services on the market, as stated in a recent blog post on BookingBug.com. Fortunately, many financial institutions choose to collaborate with fintechs instead of competing against them. An example of a payment company that uses blockchain technology without closing down financial institutions is Ripple, which is working with financial intermediaries and payment providers to process consumer payments around the world using XRP cryptocurrency; states that it offers FI partners reduced costs and access to new markets.
The burning question is that with the increase in cryptocurrencies, traditional banks and credit unions could become obsolete? Authors of an article Harvard Business Review published in May, "How Cryptocurrencies Rise, Who Needs Banks?" They do not think so, saying, "Few serious economists imagine that the new cryptocurrencies, throughout the advertising campaign, will make national currencies superfluous". They continued, "But that does not mean that new technologies will not introduce many interruptions to the financial system." With many factors at play that are too complex to elaborate on in this article, including different payment technologies, regulations and change, switching to a global cryptocurrency-based payment system would be anything but easy. The authors indicated that the real changes will take place in the technological space of transactions, concluding: "Commercial banks can continue to keep our money balances in traditional currencies and grant loans to companies with such balances, but transactions can be brokered by a separate payment technology, at least in the eyes of the end user. "So even if there is no need for credit unions to panic about extinction, they will probably have to adapt to technology change. just like they have been for the last few decades.  Is technology safe?
In general, a lot. Returning to the Reuters visual guide, each block in a blockchain generates a unique hash code. If a hacker also changes an information character stored inside a block, it will generate a completely new hash, and since the adjacent block contains the original hash, the chain will break. To restore the chain successfully, the hacker should recalculate the hash for each block in the chain – an extremely difficult and boring task.
As noted by the Tony the Lyft driver, however, there is a technology in the works that could put this padlock system at risk: quantum computing, which uses particles called qubits that allow the computer to grow exponentially. A recent article on luck warns that in the next 10 years quantum computers may be circulating, threatening not only blockchain technology but the entire financial and banking sector. As we learned from reporting so many data breaches here at CU Times no system is ever totally secure.
I hope this article has helped you provide a basic understanding of this emerging technology, for those of you who did not already have one (I know it did for me). And a big thank you to Tony the Lyft, the next time I meet you, I hope you share your blockchain knowledge with a wider audience than Stef and me.
Natasha Chilingerian is editor-in-chief of CU Times. You can be contacted at the [email protected] address.