Trésorier/Treasurer magazine - N°93 - Apr/May/Jun 2016 - (Page 16)

BLOCK CHAIN IS THIS BUZZ WORD TURNING INTO A REALITY? Behind the concept of the block chain mode lies a technology capable of revolutionising the world of banking and payments, and perhaps plenty more besides. A threat or an opportunity for corporate treasurers? Will another swathe of banking business disappear, a victim of "Uberization"? The train is pulling out of the station. Perhaps banks should get on it if they do not want to be left standing on the platform. What impact will it have on corporates? The disintermediation process could go even further and create a breach from current payment methods. What will banks be left with if they lose that business? What lurks behind such a geekish name? That is what this article seeks to tell you LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE - N°93 - APR / MAY / JUNE 2016 The Trust Machine? 16 The Economist magazine in The idea of a block chain October 2015 had an article is that one person who entitled: "The Trust Machine" does not particularly trust talking about the technology that lies behind Bitcoin, emanother person can still phasising the fact that it could do business with that perwell change the face of the son without going through world. A load of hype? A proa neutral central authority vocative name? A fanciful notion or a future reality? These are the sorts of questions we need to ask ourselves as corporate treasurers. As we all know, Bitcoin has a pretty unsavoury reputation. They say it is often misused for illegal transactions. It is criticised for being hyper-volatile. However, Bitcoin is in fact quite stable in spite of the preconceptions surrounding it (BTC/ USD: +/- $440) and perhaps less than some currencies these days. For the rest, it is difficult to argue one way or the other. Its novelty, although intriguing in the present case, troubles conservative-minded people. It will end up by gradually gaining traction over the years, we can be sure of that. When talking about block chains, we first need to know what these terms mean. It is a distributed database which manages a list of entries protected against falsification or change by the storage nodes. Properly speaking, a block chain is a decentralised record of transactions made since the distributed system first started up. We may draw a parallel with the internet, as they are both protocols that make it possible to create a decentralised infrastructure. The ledger at the heart of Bitcoin gives it matchless security and resilience because of its "distributed" design. Simplifying the concept, the transaction record is replicated on the many machines making up a crypto-currency mining network. So isolated cases of falsification have no effect because the true position is established by a majority consensus. A bit complicated, you might say. Let us bear in mind that it is public and very reliable. The idea of a block chain is that one person who does not particularly trust another person can still do business with that person without going through a neutral central authority. In other words, the block chain is a machine for creating trust. The Bitcoin ledger obviates the risk of doublespend and duplicate entries by keeping a continuous track of the transactions. That is what obviates the need to use a central authority. The impossibility of duplication, and therefore fraud, make it a remarkable tool. Its attraction today lies in what can be built upon block chain technology, rather than in cryptocurrencies themselves. This technology could reduce costs, particularly the costs of bank transfers, by several billion. The Byzantine Generals problem Block chains are sometimes described as being a solution to the famous "Byzantine generals" problem. This metaphor deals with the doubtful reliability of the information transmitted and of the integrity of the people transmitting it. The challenge is in knowing whether, and to what extent, it is possible to rely on information from a suspect source or channel. The solution involves devising an appropriate algorithm (a strategy). Some Byzantine army generals were camping around an enemy city. They could communicate only by using messengers and needed to prepare a joint battle plan, failing which defeat would be inevitable. However, some of these generals might turn out to be traitors, who would try to sow confusion amongst the others. The problem was therefore finding algorithm to ensure that the loyal generals could still manage to reach agreement on the battle plan. It has been demonstrated that by using only wordof-mouth messages, the Byzantine generals' problem could be resolved only if over two thirds of the generals (messengers) were loyal. That means that one single traitor could confound two loyal generals. Furthermore, the problem could be resolved for any number of renegade generals if the messages were in writing (and could not be falsified). By analogy with IT systems, a set of IT components working together must, between themselves, be able to deal with any faults that occur. The faults or wrong information may be accidental or malicious. It is this problem that the block chain aims to solve. Technology diverted to other uses and serendipitous accidents Sometimes a technology or an idea is developed by someone for a specific purpose, but is then diverted to other uses. Perhaps Bitcoin was just a starting point. For instance, XEROX was in existence before the first MAC, as was the Internet which, like The challenge is in GPS, was developed for miliknowing whether, and to tary purposes but is now used what extent, it is possible for absolutely everything. to rely on information Alexander Fleming discovered penicillin by chance when from a suspect source or he himself contaminated channel.

Table of Contents for the Digital Edition of Trésorier/Treasurer magazine - N°93 - Apr/May/Jun 2016

Cover
Table of contents
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW David Blair - How should we set up an efficient KYC Process?
FOCUS
IFRS 9: Hedging - Treasurers will love it
From 17 to 16 reLEASE of the new LEASE accounting standard
Block chain - Is this buzz word turning into a reality?
Bank Single Gateway, the Plumbing of Bank Connectivity
FORUM
Geopolitical threats for the year ahead
Treasurers proceed with caution
Des difficultés en série pour les nouveaux entrants
Easing the Burden - Is a global KYC standard needed?
European trade repository of the year
La dette senior Européenne, un regard nouveau sur l'obligataire
CORPORATE FINANCE
Stay connected with cloud treasury technology
From stone age to straight through processing
Differentiators for treasury management systems
Complete securities financing solutions for corporates
A full and balanced "meal" for your retirement?
15 MINUTES WITH FinMetrics
THE FINANCIAL RISK OBSERVATORY
NEWS
LIFE BEYOND NUMBERS

Trésorier/Treasurer magazine - N°93 - Apr/May/Jun 2016