This short post gives an overview on how blockchains could impact financial inclusion and “banking the unbanked”. There are two parts to this:
- Financial inclusion: who counts as unbanked? (it’s not just poor people)
- How might distributed ledger (“blockchain”) technology help?
A blockchain is a type of distributed ledger. But new distributed ledgers are emerging. These are databases where control over the data’s evolution is shared between entities. Here’s a handy cheatsheet.
This short post is inspired by a conversation I had recently with a couple of finance professors from top business schools who had some questions about blockchains.
Prof A explained that he had heard all the fuss about blockchains but was unsure whether it was revolutionary or evolutionary (I think the word disruptive was also used). I have written about disruption in Fintech and the Evolutionary vs Revolutionary aspects of distributed ledgers before (hint: it depends, it’s both, and yes, perhaps).
Then he asked, “Yes, but is there anything new?”
I have heard this comment many times:
“Blockchain” is a solution looking for a problem.
That is incorrect – here’s the problem statement, originally articulated in 2008:
The problem statement, to paraphrase, is
“How do people pay each other electronically without being at the behest of Financial Institutions?”
The proposed solution is:
On 25 Jan 2016 the DTCC released a white paper entitled “Embracing Disruption – Tapping the potential of distributed ledgers to improve the post-trade landscape”. It is a very good read: high quality, succinct, and cuts through the hype.
I attempt to summarise for those with less time to read the full paper.