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Blockchain, Digital Currencies And Financial Stability

Date : 11/11/2020

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Maria

Uploaded by : Maria
Uploaded on : 11/11/2020
Subject : Finance

Blockchain, digital currencies and financial stability
The ability to transfer and to record the ownership of digital assets and immutably store information are considered advantages of the technology that may help to reduce information asymmetries. [1]

Digital identity verification brings similar potential advantages in terms of information security, and further reduction of transaction costs. [2]

Before looking into cryptocurrencies, we will consider Blockchain, to which the above quotes are referring to. The Blockchain phenomenon is gathering more and more prominence in the last decade. Blockchain is credited with most of the positive things FinTech is credited with transparency, security, resilience and none of FinTech s disadvantages. Given the hype around it one would be excused thinking that Blockchain is a revolutionary new idea. Is it really so? In short this question should be answered in the negative.

Blockchain is a method of book keeping, sometimes referred to as a triple-entry method. It was conceived as far back as 1991 by the researchers Stuart Haber and W. Scott Stornetta, who wanted to develop a system where documents could be securely time stamped. This method did not however develop in practice until 2009 when the Bitcoin protocol was created. The reference to triple-entry bookkeeping reflects the fact that Blockchain provides for three entries one for debit, one for credit and an entry for the shared ledger.

As pointed out above, one of the most appreciated Blockchain features was its reliability - the greater security it offers with respect to the nature of the transaction and the identity of the transacting parties. This is an undeniable benefit, however, it should be noted with respect to the latter that the identity of Blockchain users does not necessarily need to be proved by conventional methods. This Blockchain peculiarity may have a bearing on some other Blockchain alleged benefits, such as its transparency, for example. Before however moving further into the specifics of Blockchain, let s look at the history behind it as this will give us some insights as to why this concept caused so much excitement in the financial world.


[1] David Mills, Kathy Wang, Brendan Malone, Anjana Ravi, Jeff Marquardt, Clinton Chen, Anton Badev, Timothy Brezinski, Linda Fahy, Kimberley Liao, Vanessa Kargenian, Max Ellithorpe, Wendy Ng, and Maria Baird (2016), Distributed ledger technology in payments, clearing, and settlement, Finance and Economics Discussion Series 2016-095. Washington: Board of Governors of the Federal Reserve System.

[2] FSB (n 2), 10.

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