Thursday, 30 March 2017
Last updated 5 hours ago
Jun 17 2016 | 1:05pm ET
Editor’s note: Over the past year, a large portion of the financial services industry has awakened to the fact that the Bitcoin blockchain, or permutations of it, will revolutionize whole swaths of conventional securities processes such as trading, settlement and custody. Harvest Exchange, meanwhile, is exploring how to apply blockchain technology – which essentially allows for massive, public and cryptographically secure online ledger systems – to financial content and other sensitive information subject to security, compliance and archiving requirements. In this guest article, Derek Anderson, Harvest’s chief technology officer, explains.
The Future of Blockchain in Financial Services Communications
By Derek Anderson, CTO, Harvest Exchange Corp.
Much has been made about blockchain technology in the world of financial services. The potential implications are limitless – as are the conspiracy theories. But the truth about this new age of security and verification is that there is much that it can do for us. One area where it can have far-reaching effects is in how we communicate sensitive financial information to each other.
There are two major aspects of blockchain technology that are realistically going to affect financial market participants. The first is the most useful in the near term and is the core, underlying practice for a large portion of blockchain technology applications. It involves using the bitcoin blockchain model as a permanent, unhackable, unforgeable ledger of timestamps. This is what we are implementing at Harvest Exchange because it answers the challenge of content and idea ownership: How do I prove what I had in the past matches what I have right now without having to disclose or release the subject matter? Or, if it was publicly available, that it hasn’t been doctored by myself or anyone else?
As an example, imagine you have top-secret research at your disposal that says some company is going to perform well. Is this something you would want to share with just anyone? Probably not. You are more likely to want to share with paying clients. Then, once the company has fulfilled the positive performance, you can release your research to prove that you knew it was going to do well all along. You can do this using blockchain technology and anyone else can verify that information without having to trust you, know you or use a third party. You can prove you actually did say something 6, 12 or 18 months ago.
This is where we are headed for our users. We intend for our publishers and readers to know with a certainty that what was published on a certain date was actually the original content and has not been adjusted. That’s why since our inception, all of our articles have been unmodifiable after posting. We don’t want people changing what they said and claiming they had been saying something else all along. This led us to offer additional content verification provided by blockchain.
Now, what if a C-level employee such as myself decides to go rogue and wants to go in and delete messages or change something they or someone else said? With this technology, no one can go in and forge what someone else said nor when they said it, not even the CEO, CTO or other member of company leadership. It is completely trustworthy timestamping and proof of concept.
The second major component of blockchain in financial services is called chain of custody, or more commonly, asset transfers. As an example, if you do a stock trade, it’ll take you three days to clear the trade, because there are intermediaries who are handling the ownership of this particular block of stocks. However, if you performed transactions over some sort of blockchain or certified ledger system, the process is quickened, because you already have proof of having bought this amount of shares. You don’t have to trust a third party intermediary to prove you own it.
However, asset transfer is less applicable in financial services communications. We’re more focused on archiving historical data for our customers that can be helpful for them in scenarios where they need to show tangible proof. For example, if a company is ever in a lawsuit and has to go through e-discovery, it would be able to prove to customers that they were right about a particular prediction or analysis. Or, it can be used in marketing, when trying to show your next customer that you were right about a prediction in the past.
At Harvest, we’ve taken the position that the time for blockchain is now. There is an appetite in the marketplace for it; people know it is new technology but they feel it’s been around and studied enough, so they have faith in it. People are just about ready to integrate it into their workplace and we’re starting to see everyone from major organizations to startups invest in blockchain. That adds a lot of legitimacy for the average financial professional.
As a result, we’ve developed the capabilities to timestamp our users’ content and provide additional protection over time. For example, we can create a calculation to determine how much money it would take to forge a piece of content in the future just by using the date a piece of content was stamped. We then figure out how much someone would have to spend over a defined period of time in order to perform a forgery. That way we can put a dollar amount on how well-protected a document is – a dollar figure which typically grows to astronomical levels. This puts a real concept behind just how secure this kind of ledger system is.
This is something that we predict will take off rapidly in financial services communication. I certainly see this working its way into compliance as a higher level of security. Although there are currently many companies who can stamp something in real time and archive your data – effectively proving your chat logs happened when you said they did – you’re still relying on a third party. What happens if someone hacks that third party? Your data is still compromised and can be manipulated so it looks like something illegal. The difference with using blockchain technology through a content company like Harvest is that it’s part of a larger compliance mechanism you can use to prove to your internal teams and external audiences that no matter what happens anywhere in the world, or how much money anybody has, or how much hacking skills someone has, no one can ever falsify the data – ever. And this strong level of protection is relatively inexpensive compared to some hedge fund consulting companies that can charge millions of dollars a year just for archiving compliance.
The important thing to consider when diving into blockchain is whether it is technology just for technology’s sake or technology that is the right fit for your organization. For Harvest, the actual bitcoin blockchain is the right fit because our users need to have the assurance that they are being protected by the sheer size of this technology, which is the largest and most-tested in its class and one which cannot be easily replicated.
We envision this as part of a robust compliance mechanism where we can archive all of our user data. The best part about this compliance service is that users don’t need to pass along raw data in order to secure it. They would just provide a cryptographically secure hash of the data which does not contain actual data and from which it is impossible to extract the original data. However, it will let you prove what that data is in the future. The fact that a company can get this proof of existence without having to disclose the base information is truly a remarkable effect of modern innovation.
Blockchain is revolutionizing the way companies look at customer and investment information, offering increased protection from cyber-attacks and fraudulent activity. It’s also changed how we interact with stakeholders and gives us peace of mind when it comes to data confidentiality and recordkeeping. In today’s age of transparency and real-time information flow, financial institutions that embrace blockchain will have a clear competitive advantage.
Derek Anderson is chief technology officer at Harvest Exchange.