Can blockchain technology increase credit union efficiency and safety?

USA credit unions are looking at creating their own distributed ledger platform

With more and more financial institutions exploring potential uses of blockchain technologies, credit unions are looking at creating their own distributed ledger platform.

A report published by the World Economic Forum in 2016 revealed that 24 countries were investing in Blockchain while 80% of banks were starting distributed ledger projects. Just in the US, over USD $1.4bn has been invested in Blockchain in the last three years.

CULedger, a prototype research to action industry initiative, aims to make the case for a distributed ledger platform owned and controlled by credit unions.

John Best, who leads Best Innovation Group, CULedger’s technology partners, delivered a presentation on the project at the World Credit Union Conference in Vienna. He explained how distributed ledger technology could be used for other purposes, not just cryptocurrencies.

“Distributed ledger is not Bitcoin. The technology was built to support Bitcoin but the underlying technology is what matters for us. It is also known as shared ledger,” he said.

A shared ledger is a linked set of transaction records. All transactions are independently verified by others and held on a distributed ledger, which, according to Mr Best, adds increased efficiency and safety.

“The value for financial institutions is increased efficiency and safety, it allows us to transact business without the middleman,” he said. “Because so many people see the transaction there is power in the transaction, you can track the money. In Bitcoin you can go back to the very first transaction ever,” added Mr Best.

For example, if ‘credit union A’ were to transfer money to ‘credit union B’, the other credit unions would witness the transaction. Each ledger is tied to the previous ledger via a hash – a digital repress of an object.

“We can always tell if the box changed. The next ledger references to the previous ledger hash,” added Mr Best.

Bitcoin is an open network, also known as a permissionless type of ledger. The platform explored by CULedger is permissioned. This means that the network would be closed with only the credit unions having access to it.

“The software keeps bad things from happening in permissionless networks. Permissioned networks use the algorithm as well as human checks.

“In a permissioned network we sign up to join, we sign a contract. How we govern the network is based on that, too,” explained Mr Best.

Mr Best argued the distributed ledger technology was safer than other systems even if it were to get hacked. Distributed ledgers separate data and duplicate it thousands of times. Ownership of the data remains with the individual and any attempt to change it without their consent is immediately detected and rejected by the network.

He added the technology would also enable smart contracts, computer programme codes that are capable of facilitating, executing, and enforcing the negotiation or performance of an agreement using Blockchain technology. The software could automatically change the contract if conditions changed.

The technology could be used in real estate titles, automobile titles, credit union membership, mortgages, insurance, supply chain, card issues, securities and other actions.

Another use of the distributed ledger technology will be to executive contracts in second via proof of concept. For example, credit union customers could install the software, which will enable them to then login process easier. The identity is not stored on the device but on the ledger and the user would need to use their fingerprint or voice recognition to authenticate.

“If a person calls a credit union with bad phone number credit unions can share that threat,” said Mr Best. He added that CULedger would continue to focus on exploring the concept of identity rather than on the use of cryptocurrencies.

“Cryptocurrency will have a value for financial institutions but before get there a lot to happen,” he concluded.

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