White Paper: Blockchain and Credit Unions - A Revolution in Asset Transfer: Blockchain cannot completely eliminate central management agencies (full white paper download)

Glenbrook and PSCU (Public Service Credit Union) have released a white paper, Blockchain and Credit Unions: A Revolution in Asset Transfer (download the full white paper), which the authors hope will shape the future use of blockchain technology in the credit union industry.

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PSCU has been providing traditional and online services to at least 800 credit unions. Glenbrook is a payment industry strategic consulting and research firm.

Credit unions play an important role in the global financial industry. They are service providers whose primary business objective is the satisfaction of their members, not huge profits. Keeping up with the development of technology can help these cooperative-based credit unions to operate well.

Blockchain governance is a key point of the white paper

The white paper discusses the various features and benefits of blockchain and examines how the Bitcoin blockchain works. The authors argue that while the blockchain system itself is 'resilient to errors', the important question is "who manages the blockchain in the long run?"

The white paper states:

“Bitcoin is a case in point. While the software is capable of reliably processing transactions, the decision-making process around upgrades to the software and the overall evolution of the Bitcoin system is paralyzed. Bitcoin decision-making power is in the hands of a small group of software engineers who cannot agree. This has led to a planning deadlock that remains unresolved.”

This mess makes this type of management untenable, according to the authors of the white paper, which makes clear that some human intervention is useful in a business environment.

Blockchain has extensive applications in the credit union industry

In the case of credit unions, the white paper narrows down some of the real-world applications where blockchain can be successfully applied. The document identifies some relatively simple applications, such as P2P trading of some complex products, such as clearing/settlement, and smart contracts. Some of the use cases covered in the document are:

•P2P payments : The white paper examines Bitcoin as a P2P way to process payments, but points out that this approach has bottlenecks.

The white paper states:

“Connecting Bitcoin to a dollar-based account (or any other currency) has always been a challenge, simply because buying Bitcoin is an awkward and complicated process.”

• Remittances and payments : This is quite innovative, and the white paper points out that remittances and payments are already well covered by existing services. However, they still use Circle as an example, which acts as an intermediary to process international transactions in Bitcoin without the customer themselves having to touch Bitcoin.

•Financial institution settlement : This is perhaps the most attractive aspect of all blockchain applications. Large transaction settlement across financial institutions using blockchain can help credit unions compete with large institutions. The white paper cites the R3CEV alliance.

The white paper states:

“For example, R3CEV provides its 50+ members with the opportunity to evaluate the collaborative use of distributed ledger mechanisms in interbank settlements, as well as the trading of various assets, such as stocks and bonds.”

• Other promising applications : Record keeping, identity management, asset exchange and smart contracts can all be used by credit unions in different ways. For record keeping, a blockchain-based approach can especially save credit unions from labor-intensive activities. Digital identities can be centralized using blockchain technology. Asset exchange can help credit union customers complete a wide range of asset transactions, such as bonds, stocks and even property rights, in minutes instead of days.

Credit union revenues not threatened by blockchain

The white paper has clearly stated that Bitcoin is the best blockchain product currently built, but it also states that a lot of testing is still ongoing.

Glenbrook and PSCU said blockchain deployment is still several years away.

“Even the strongest advocates of this versatile technology realize that it will take five years, if not longer, to identify the appropriate blockchain use cases and create production-ready systems.”

As for the impact on the future, the white paper notes that although Bitcoin visionaries have imagined a world without a central authority, this is unlikely to happen.

The white paper states:

“Credit union payments revenues will not be eroded by blockchain in the foreseeable future. This outcome is very different from what Bitcoin visionaries envisioned, which envisioned a world where payments and assets were exchanged without the involvement of a central authority. The reality suggests otherwise. Individual transactions and day-to-day operations may be fully automated and autonomous via blockchain; even audit functions may be largely automated and self-reported. But payments functions will remain under traditional controls.”