You may never invest in bitcoin, but the cryptocurrency may soon impact how you transact your financial business.
American Express recently implemented an instant payment system using Ripple, a cryptocurrency that is based on the same blockchain technology as bitcoin. While these transactions are currently limited to US corporate customers sending funds to United Kingdom-based businesses, a wider use may be on the horizon.
San Francisco-based Ripple is backed by firms including Accenture and SBI Holdings. The firm’s main focus is using blockchain technology to facilitate safe, secure, cross-border payments.
The Amex/Ripple deal is one of the first widespread uses of blockchain. You may have heard of blockchain; it too has been all over the news recently. While it’s tied to bitcoin, it’s not a currency. Instead, it’s a new kind of technological backbone that provides a way to record and transfer data that is transparent, more auditable and, supposedly, resistant to outages. Blockchain can also potentially reduce the complexity and cost of processes like securities settlements and international payments That’s powerful stuff.
How exactly does it work? Let’s break it down with the real-world example of a favorite childhood game – “whisper down the lane” (or “telephone,” depending on where you’re from). No matter how hard we all tried, the starting phrase invariably changed from the first kid to the last.
But let’s imagine a game of whisper down the lane using blockchain. Every time there is a whisper down the lane, the kid verifies the phrase with the kid before him, making sure he hears the phrase perfectly right before moving on to the next kid. So, kid 6 verifies with kid 5, who verifies with kid 4, all the way back to kid 1. When it goes to kid 7, she has to verify with 6, who then re-verifies with 5, back to 4, 3, 2, and 1. The phrase would be re-verified all the way back to the first kid each time it traveled to a new kid. This is blockchain technology.
While the partnership has made headlines, it shouldn’t necessarily be surprising. Blockchain technology has already cut its teeth transforming businesses in sectors like aircraft manufacturing, insurance, and food transport tracking.
The new venture with Amex and Ripple has been promoted as providing real-time, trackable non-card payments from the US to Britain. Both companies seem confident in the success of the partnership, with Amex reporting that they plan to extend the reach of the deal in the future. Ultimately, the goal is to have transfers happen instantaneously, in order to keep pace with the realities of modern business.
Commentators have remarked that the Amex/Ripple deal represents a turning point for the widespread use of cryptocurrency, and another example of how blockchain technology will continue to be used across various segments of business.
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