From Bitcoin to Big Data, Blockchain is disrupting the world's financial technology

     Bitcoin first emerged in 2009 as open-source software, introducing consumers everywhere to the concept of digital money that transcends national borders and government agencies and is governed by a complex system of technological checks and balances.

While Bitcoin itself struggles to gain acceptance from consumers and financial institutions, the technology behind Bitcoin transactions may be the next big thing in transaction processing and recording.

"As a virtual currency, Bitcoin has no regulator or bank behind it," said Lois Hansen, vice president of product development at CO-OP Financial Services. "However, there is a highly complex program called blockchain behind Bitcoin, which has attracted the attention of the financial community."

How blockchain works

Hansen described the blockchain as a public, decentralized ledger that records all bitcoin transactions. She said: "It consists of two types of records, transactions and blocks. Transactions include the actual data stored in the blockchain, and blocks confirm exactly when and in what order the transactions occurred."

Hansen also said that as new blocks are added, the blockchain begins to grow linearly and chronologically, producing accurate data of all transactions historically generated in its internal ecosystem.

According to Brian Bodell, CEO of Finivation Software (CO-OP's business partner), what is truly unique about blockchain technology is that it can distribute processing power and transaction confirmations across such a wide and dispersed user base. In addition, its advanced encryption capabilities increase the security of transactions.

Brian Bodell said: "Until now, the term blockchain has been closely associated with Bitcoin. But Bitcoin is just one application of distributed ledger technology."

As for credit unions and other financial institutions, Bodell said blockchain technology could be key in reducing the costs of running many core processes, including payments, settlements, records and reporting.

“Where blockchain really shines is in its ability to track ownership,” Bodell said. “Blockchain is great for tracking transactions between dealers, traders, investors and borrowers and can be used to seamlessly track everything from personal debts and stock transfers to cross-currency payments and real estate transactions.”

He added that blockchain technology has the potential to streamline a wide range of non-financial transactions. “It could change processes like counting votes in national elections or ranking music charts. It could also enable device tracking in the age of the Internet of Things,” he said.

Betting on blockchain - from Wall Street to Silicon Valley

Investors and tech moguls are pouring resources into blockchain technology. According to a report by Algonomic.com, venture capitalists invested nearly $1 billion in Bitcoin and blockchain in 2015. Considering that the World Economic Forum has listed blockchain as one of the six major trends, Microsoft's Azure public cloud platform offers Blockchain-as-a-Service, providing developers with integrated tools to help them build, test, and deploy their own blockchain applications.

According to blockchain startup R3, 42 of the world’s largest banks have joined the company’s distributed ledger initiative, extending the technology to the wider financial services community.

That’s why Hansen recommends cooperative banks take a close look at the technology, and CO-OP will release a white paper and other educational materials on blockchain in 2016.

“Credit unions are by their very constitution a cautious group, but that’s also why they’re successful, because they’re cautious and stay out of potentially high-risk environments,” Hansen said. “The fact is that there’s a lack of regulation, oversight and control that still affects the bitcoin market today.”

She added: “However, when it comes to product development, profits are often magnified by failure. The potential benefits of blockchain technology are beginning to emerge. In fact, technologists around the world are working hard to make this disruptive innovation applicable and profitable, and many technologists call blockchain technology the evolution of big data .”