Blockchain for Bankers

A few weeks ago I attended RegTech 2017 hosted by American Banker.  The conference was focused on existing and emerging technologies that could eliminate or minimize the regulatory burden on banks.  There is a lot of excitement focused on a few key technologies that may help ease this burden.  Blockchain is one of those technologies. So, unsurprisingly, the term BLOCKCHAIN was thrown around the room frequently, often misused and rarely completely understood.  What follows is my attempt to explain it from an executive's perspective.  It's not meant to be a complete or exhaustive treatment of the topic,  and is also, in part, an effort to clarify my own thinking on blockchain.  


A blockchain is simply a list of records.  Similar to a spreadsheet except, each record or row, is "sealed" by cryptography so that the information can be read but it can't be easily changed.  Each row is linked to the prior row forming an ordered chain which is almost impossible to reorder.   

Unlike a spreadsheet, the rows in a blockchain can't be modified unless all subsequent rows are unsealed first.  The more rows in the block that are chained together, the harder it is to modify the earlier rows.  If there are 10 rows, and you want to modify the data in row 1, row 10 through 2 must be unsealed first before modifying the data in row 1.  

If there are many users, a consensus must be reached in order to unseal each row.  If there are 10 users, then 6 users must approve the unsealing of each row.  As you can see, the difficulty of changing any row increases proportionally to the number of rows and number of users.  

Distributed Ledger

A blockchain can serve as a distributed ledger.  A distributed database of transactions that can be easily and openly inspected but almost impossible to modify.  To modify one transaction on the ledger, all subsequent transactions must be unlocked and a consensus must be reached among all participants on the network.  

The ledger is managed autonomously by a peer-to-peer network and time-stamping system.  Transactions are broadcast via the software over the Internet and each node validates the transactions, adds them to the block and rebroadcasts the updated ledger.  

The first and most famous example of distributed blockchain is bitcoin.  It was conceptualized by a person or group of people known as Satoshi Nakamoto.  The use of blockchain in the design of bitcoin has been the inspiration for many applications including other cryptocurrencies and business applications. 

Blockchain as a Protocol 

An interesting way to think about blockchain is to think of it as a virtual computer.   Like cloud computing, where virtual computers communicate and exchange data based on the Internet protocol (TCP/IP), blockchain computers communicate and exchange data using blockchain protocols that include rules for cryptography and consensus.  

However, unlike Internet virtual computers, blockchain computers continuously check each other based on these protocols and eliminate the need for central authorities.  In short, a way to outsource trust to a network of computers.  

The combined ability to decentralize trust and create an unforgeable record of transactions can lead to all sorts of applications in banking and business in general.  


Tokens are a type of virtual asset that can be transferred between parties but can't be duplicated.  Tokens are the sort of fuel that power blockchain transactions.  The best analogy I've seen is from Balaji S. Srinivasan, who is the CEO of

"The best existing analogy for tokens may be the concept of a paid API key. For example, when you buy an API key from Amazon Web Services for dollars, you can redeem that API key for time on Amazon’s cloud. The purchase of a token like ether is similar, in that you can redeem ETH for compute time on the decentralized Ethereum compute network.
This redemption value gives tokens inherent utility.
Tokens are similar to API keys in another respect: if someone gains access to your Amazon API keys, they can bill your Amazon account. Similarly, if someone sees the private keys for your tokens, they can take your digital currency. Unlike traditional API keys, though, tokens can be transferred to other parties without the consent of the API key issuer.
So, tokens are inherently useful. And tokens are tradeable. As such, tokens have a price."

Tokens are like a stored-value card for software.  You prepay for something valuable and redeem it at some point in the future.  They can also be transferred for other forms of value or currencies.  

Blockchain Applications in Banking

There are several areas in banking where blockchain could be impactful in the immediate future.  The main categories are Consumer facing products (currencies, payment methods, payment processors), business to business products (credit, payment processors, merchant accounts), Trading, IT Infrastructure and RegulatoryFor instance, considering a key application would be managing or tracing transactions that are multi-step and/or multi-party. 

For instance, analyzing a chain of custody transaction or multi-signatory authorizations can all be automated via Blockchain technologies.  This could also be powerful in KYC or AML compliance analysis. 

The elimination of trusted central authorities has a lot of potential applications in banking and finance. 


Blockchain is a game changer.  Combined with tokenization and ICO's it could change the face of so many global systems but I feel like bankers are facing a 100-year strategic inflection point.  Think March 10, 2000 and telecommunications.  

Key takeaways

1. Blockchain is both a threat and an opportunity.   Blockchain, if harnessed could be an effective way to automate many human intensive tasks in banking.  The distributed ledgers are also an exestential threat.  

2. Blockchain is better, maybe not faster, and maybe not cheaper.  Shared ledger...YES.  But the block size, at enterprise scale could make it slow and costly to maintain.

3.  Blockchain is more than Bitcoin.  Blockchain is a new protocol.  Like the Internet protocol circa 1996 it's impossible to predict winners and losers in the short term.  

As for Trust Exchange, we're taking a long hard look at how blockchain can be a force multiplier in compliance.  For us, it looks like a force multiplier for collaborative compliance.