The Hutchins Center Explains: How blockchain could change the financial system

From: Brookings

[Brookings] Editor’s note: If you want to know more about blockchain and disruptive financial services technologies after reading this Q&A, watch the Hutchins Center’s live discussion this Thursday at 1:15 p.m. EST. You can register here to receive a reminder about the event. It will be webcast live on the same page.

Bitcoin, the stateless virtual currency, often sounds like something between fad and fraud. But the technology undergirding bitcoin and other cryptocurrencies—both the software protocols that make them work and a “distributed ledger” innovation known as the “blockchain”—may prove to be an enduring development that could significantly alter the way money changes hands around the world.

As Bank of England economists put it in a recent essay, “The key innovation of digital currencies is the ‘distributed ledger’ which allows a payment system to operate in an entirely decentralized way, without intermediaries such as banks.” This could turn out to be a highly disruptive technology, one that challenges the dominance of the big players in payment systems and that significantly reduces the cost of financial transactions and the speed with which they are completed.

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