Visa has announced a new pilot project in Europe in collaboration with blockchain startup BTL Group. Visa's London based innovation lab, Visa Europe Colab, design a pilot to test how blockchain technology can be used in cross-border money transfers.
What exactly is this technology that Visa has been investigating for 18 months? Why is it causing such a stir in the financial industry?
- According to the Financial Times, “A blockchain is a shared digital database that allows transactions to be recorded and verified electronically over a network of computers without a central ledger.”
- Digital records are collated into blocks. These “blocks” are cryptographically and chronologically bound into a “chain” using complex mathematical algorithms. If all computers agree on the answer, each block gets a unique digital signature. This is called hashing.
- Because blockchain is distributed, it’s more immune to cyberattacks. Hackers would have to get access to every copy of the database simultaneously to carry out a successful attack.
- The hash can’t be converted back into the original data. The process is irreversible.
- Blockchain isn’t new – the idea came about a couple of decades ago. However, it came to prominence in 2008 with the birth of Bitcoin. Blockchain is the technology underpinning the digital currency.
- Financial services such as Visa are excited about blockchain – it could remove the need for middlemen, regulators will have access to a transparent ledger of transactions and dealings will be speedier.
- There are down sides though. Mining (the process behind blockchain) requires a large amount of energy. Furthermore, the high initial costs of blockchain are high.
Read the August 2016 issue of Business Review USA & Canada magazine