The main features of the new peer-to-peer lending revolution in the UK, called the “blockchain technology” or “blockchain technology industry” are: privacy, speed, trustworthiness and a robust platform. A recent article by BBC Education Magazine (paywall) outlines these key features in more detail. Their main arguments include that the current regulatory frameworks for both commercial activity and consumer protection are too restrictive and can inhibit the growth of the new technologies. They also point out that existing systems and legacy financial systems are unsuitable for distributed ledger technology due to security issues and lack of auditability and openness.
However, the real value proposition of the new technologies is their ability to offer complete consumer protection and greater efficiency through better financial control and more innovative lending practices. The new blockchains can offer true transparency, allowing users full access to all the transaction details. This would allow businesses to trace the path of any money through the ledgers. A major advantage for investors is the increased rate of return on their equity. The new blockchains, due to the open nature of the technology, would remove the need for intermediary institutions such as banks. The end result would be greater overall investment returns.
For the consumer, the main attraction of the new technologies is in their potential to offer improved privacy protection. The increase in the amount of digital transactions taking place every day, has brought increased pressure to find solutions to enhance the privacy of the internet and reduce the risks associated with it. One such way is the use of blockchains to create more secure ledgers.
Advantages of the Ledger:
The benefits of a distributed ledger are also evident in the capacity constraints ledger technology offers to organizations. Blockchains allow for greater operational efficiencies through their lower cost structure and higher performance levels. Furthermore, they increase the accountability of the network, as the ledger provides a proof of authenticity for all the activities happening on the network. When the network experiences ledger anomalies, the proof of ownership of the digital transactions provided by the ledger provides irrefutable evidence of the ownership.
Distributed ledgers have the ability to build trust because of the increased speed and safety it provides. Because of the increased speed, there are increased accountability of the network and less time for transactions. Distributed Ledger Technology can greatly increase cross Border payments and reduce the time to settle loans and other financial obligations. The result is lower costs, which lead to increased profitability for the lender. This type of technology is particularly attractive to B2B companies that may require faster payments for their suppliers and customers.
Additional Features in the BlockChain:
The flexibility of distributed ledger technology allows the user to create his or her own permission-based virtual private networks. A user can establish a permission-based network that limits the access of other users to the ledger. The users may specify rules for who can create transactions as well as the circumstances under which a transaction cannot be completed. The bottom line is that if a user can define the rules of his or her own network, he or she can effectively restrict or eliminate the chances of fraudulent activities on the ledger.
The Byzantine Generals Paradox highlights the potential for a Byzantine Hoard, where multiple chains with conflicting goals attempt to work together. The Byzantine Generals Paradox highlights the potential for a Byzantine Hoard were multiple chains with conflicting goals attempt to work together. In a Byzantine Hoard, two or more competing chains try to secure the same information or the same set of information simultaneously. If any single chain is attacked, attackers may gain control of the ledger. Attacks on this kind of network can subside once all users are able to access the ledger. If one chain is attacked, other users can make their transactions visible to honest miners, thereby ensuring that the ledger remains secure.
However, there are additional risks inherent in the use of a distributed ledger. The major risks include security breaches, denial-of-service attacks, and loss of funds. If an investor believes that these risks have been properly addressed by a specific business, then that business will be considered a good choice. An investor protection plan should include measures to mitigate and prevent such risks; otherwise, it will not be effective.